Zach Kamphuis spent six years at Commerce7 watching the same movie on repeat: wineries getting kneecapped by compliance software that costs too much, does too little, and creates unnecessary friction to the essential part of commerce, completing the transaction. As the son of one of the industry’s greatest innovators, Andrew Kamphuis of Commerce7, it wasn’t clear that he’d follow his father’s footsteps. But he put in the hard yards and earned his way up the ladder at his father’s company, and eventually became the architect of the sale. After a long, entrepreneurial run with a great exit, Zach did the right thing. He recharged. Then he and his wife did what you do when you’re young, untethered, and still able to sleep sitting upright: they visited every continent in 2024. Yes, even Antarctica. Because apparently he’s a younger version of the most interesting man in the world.

But wine tech does this thing to you. It gets into your bloodstream. You can leave the office, but the problems you face and never solved haunt you. I know that ghost well. And that itch, the itch of the unsolved, nags at you in the back of your mind. With Zach, that nagging kept coming back to compliance. His dad, Andrew, was thinking the same thing—separately. So was Jeff Carol. Three people who actually know this industry (not “I read a thread once” know it), all landing on the same conclusion: There’s a hole in the market, and it’s not small.

Why compliance of all things?

Compliance is one of the few categories in wine tech that isn’t optional or a problem in search of a solution.

“I like the compliance space because compliance is a requirement,” Zach told me. “It’s not a nice-to-have, it’s a must-have.”

He’s right. Every winery that sells DTC in the U.S. needs to deal with compliance. Maybe you’re doing filings with a partner. Maybe you need real-time checks and a more sophisticated system. But you don’t get to ship across state lines without it. Period. That alone makes it rare. Most wine tech is a parade of “wouldn’t it be cool if…” Compliance is “you literally can’t operate without this.”

And yet, despite being required, it’s still priced and packaged as a tool that penalizes wineries for higher sales, rather than as the one that actually helps capture those sales.

I’ll admit I once nearly came to blows with Jason Eckenroth, founder and CEO of ShipCompliant, after he declared that compliance was the most important thing in the wine industry. I swept the table, and Andrea Johnston, COO of WineDirect, literally had to hold me back, while I fired back something along the lines of “You’re a toll booth on a road you didn’t build.” Not my finest moment, and I clearly undersold the genuine importance of compliance in the heat of it all, but it isn’t the center of commerce; it’s unnecessary regulatory friction, but yes, mandated to do the job. However, both Zach and I have always viewed compliance as a feature that makes it easier to collect transactions, rather than as the center of DTC commerce.

ShipCompliant has been around since 2009. It works (mostly). They’ve been the standard forever. But Zach kept hearing the same thing from wineries: “It’s overkill. It’s rigid. It’s antiquated. And the pricing is punitive.”

“It seemed like there was really a need for a more lightweight, more modern, much more affordable solution,” he said. “That’s not a shot. That’s just what happens when a category matures into a virtual monopoly and a pricing structure built when the company was cash-hungry. The dominant company is trying to extract the most money from big accounts, and everyone else gets told to either pay up or suffer.”

And when software is priced off production size or gross revenue, let’s be honest: that’s not “pricing.” That’s rent extraction. Zach’s seen wineries paying $15K a year for basic compliance. I’ve seen some up to six figures. Just for moving data around and gatekeeping as the only sheriff in town.

You can call it “necessary evil.” Wineries call it “another bill I hate.” And to top it off, ShipCompliant hasn’t innovated much since its 2014 sale to Sovos. While that may be a testament to its staying power, it’s more a testament to the lack of choices. When I volunteered at a winery on Sundays for the last few years, it pained me to hear how much MANUAL reconciling the small team had to do just to make the transactions work.

What’s different this time

Zach’s going for simple, transparent, accessible pricing.

Zach put it plainly: “VinoCheck is built around a simple idea: compliance software should be modern, easy to operate, and priced so it’s accessible. We don’t pretend to have every feature under the sun today, but we ship quickly, listen closely, and plan to keep the product affordable so compliance tooling is within reach for everyone”.

The build is modern, lightweight, and excels at the essentials: keeping wineries compliant, ensuring tax and fee calculations are accurate, and simplifying day-to-day workflows.

He’s got a small team of developers leading the build, with Andrew + Jeff providing strategic guidance as Advisors.

The part of the market that’s getting screwed

The wineries of all sizes are suffering. Right now, there are two choices:

1. Overpay for a system designed over a decade ago and still lose money reconciling the transactions

2. Duct-tape together workarounds and hope nothing breaks

Zach is aiming directly at that gap, producers who need compliance that works seamlessly with their commerce solution, not drags it into oblivion. A solution that understands wineries want to ship legally without hemorrhaging margin on software that doesn’t scale down nor shred margin as one grows.

“The smaller end of the market was just really not being fit,” he said, “and wineries growing their DTC to be sustainable are being taxed at a rate that acts like a toll booth instead of infrastructure.”

That’s the opening. And this isn’t some Silicon Valley “disrupt the industry” theater. No revolution cosplay. No buzzword soup. It’s much simpler, and much more useful: build something that works for the people who’ve been ignored. Make it modern. Make it affordable. Make it work.

Zach knows the space. He knows the operators. He has the respect of so many of both the old guard and the new innovators. He’s watched the pain up close for over a decade. Now he’s taking a swing at the thing wineries should have had all along: compliance that does the job right, at a fair price, without making you hate your life.

VinoCheck is deeply integrated with Commerce7, and on the roadmap, they will soon be working with Offset and Shopify via the Atowmic Club app. They charge $199/month and,

while they are still adding features to make compliance easier, they are the best choice for wineries using any of those three systems and will only get better to become the best solution (price and features) by the end of the year. I guarantee it.

With the new wave of generative AI, as in all industries, an onslaught of companies are claiming they can make personalized recommendations for consumers in wine. This is pure hogwash. Personalized recommendation engines for wine (in which a system can, based on a set of basic inputs, tell you wines you're going to like) is a veritable Three-Body Problem for wine.

I'm not saying that a functional recommendation engine isn't possible for wine. There are many known methodologies for building tools that help surface "approximately" similar wines. Some are more effective and useful than others, but they all assist a buyer in becoming exposed to other products from a retail selection.

Content-Aware Recommendation Engines

Metadata allows easy, blunt groupings of products (e.g., Napa Cabs at the same price, Red Bordeaux Blends, Red wines with the same Parker rating, White wines with the word "crisp" at the same price point). These content-based filtering factors are not personal recommendations but are standard matches and "good enough" for most average wine consumers.

Data inputs help determine the similarity of products for the recommendation engine. However, there are multiple problems with this approach. Metadata is an imperfect tool for correlating matches for a myriad of reasons. First and foremost, the taxonomy qualities of wine do not guarantee specificity or even commonality other than location, price, and variety. For example, a Sonoma Coast Chardonnay at $70/bottle might get you Ceritas Chardonnay Carex Vineyard Sonoma Coast or Moone-Tsai Heitz Vineyard Sonoma Coast Chardonnay. Any reasonably competent taster will tell you that these two wines couldn't be more different in style and almost certainly will not appeal to the same drinker. Content-aware recommendation engines have a limited product set to choose from for these content matches, which is to their benefit. For example, Wine.com has one of the largest online selections of any retailer, but when you filter their offerings by meta-data, things get small quickly.

A content-aware matching engine must only filter through 256 Sonoma Pinot Noirs or 756 California Cabernets. That's not super challenging for a human, much less a machine.

Almost any match this type of engine produces will be "Good Enough" for average consumers but in no way represents a truly personalized recommendation.

Another standard method, the latent factor model, involves mapping objects and making recommendations based on which things are closer to each other. Here is a movie recommendation example.

Like most types of recommendation engines, the methodology makes good approximations for people who enjoy wine but are not overly expert. But even in the simple diagram below, you can see that the neighboring wines are significantly different for a trained palate. And even more extreme when you skip one nearby wine to the next.

Building a proximity algorithm that theoretically links a consumer from a chardonnay to a Chablis is much easier than matching a wine from the Fiano grape that might have the same saline qualities as a field blend from the Canary Islands. Crossing from a meta-data model to a proximity model is much more complicated for a wine recommendation engine because nearby wines may cluster too easily, and exciting and really good wine recommendations often traverse or skip neighboring recommendations. For example, what red wine would a proximity model recommend for someone who likes Lopez De Heredia? Or what white wine would be a good match for someone who enjoys Beaujolais Nouveau?

Another traditional type of building recommendation is collaborative filtering.

Collaborative Filtering was first made famous by Amazon and operates under the thesis that people with similar tastes will likely enjoy similar items. Thus, the past choices of others can be used as a predictor for future taste preferences. For example, if 100 people like Cool Ranch Doritos, and 90 of them also buy Tostitos Hint of Lime chips, the remaining 10 consumers would likely also buy that chip if recommended.

The problem with collaborative Filtering as applied to wine is that long-tail products in wine are, by nature, limited in quantity and often sell out. The long tail is a statistical model frequently applied to the demand (and supply of products). Sometimes, it is represented in other ways, like the Pareto Principle.

The nature of the Long Tail means there will rarely be enough crowd dynamics for most products to cluster accurately and correlate products, especially those with limited distribution and low or no engagement rates to use in recommendations. As such, Collaborative Filtering strongly favors popular products with more distribution and awareness but is nearly impossible for the many niche products that make up the world of fine wine.

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LLM’s Using Consumer or Trade Reviews

Trying to use consumer or trade tasting notes and reviews for wine also doesn't work because language is limited, and the same taste sensation is either homogenized across so many wines or might be interpreted differently across other tasters.

Here are two descriptions from a popular retailer for chardonnays at the same price point from Sonoma.

"It showcases vibrant citrus, stone fruit, and floral notes, complemented by hints of toasted nuts. Known for its elegance and balance, it combines richness with refreshing acidity."

“Following fermentation in stainless steel tanks, the wine was aged for 12 months in new and used French oak barrels, further enhancing its complexity. Focused and precise, the Chardonnay has a delicate tension with lovely notes of citrus zest, pear, apple blossom, wet stone, and crushed rocks.”

One of these wines is Kistler, and one is Ceritas. Two wines that are almost diametrically different in their taste profiles, but due to the finite nature of language, people's limitations in describing taste, and interpretations of flavors, the descriptions of the wines aren’t that different, at least from the standpoint of a computer. How many red wines have "cherry" in their descriptors? You can cross from Gamay to Petit Syrah, Pinot, and even Rose. And "lemon" or "vanilla" in white wines? Many professionals think this is only a problem applied to consumer tasting notes because of their limited experience.

However, the machine has equally as many problems interpreting professional tasters because interpreting obscure flavors like pencil shavings, marzipan, brambly, sandalwood, treacle tart, Chinese spices, exotic spices, brooding, angular, white flowers, and more is equally challenging.

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Even Bad Recommendation Engines Increase Conversion

The industry's dirty little secret, however, is that if any group of wines is presented as a recommendation, no matter how bad, human psychology ensures that these recommendations will naturally increase sales (correlation, not causation). Even just putting random wines as recommended suggestions will have a net positive effect on increasing sales and basket size. But no matter how much all these apps, websites, and technology tools want you to believe to the contrary, this is not the same thing as a personalized recommendation.

By way of example:

Gives you these recommendations . . .

Fundamentally, these are not bad recommendations for an average consumer. However, someone well versed in wine knows that Cain Five differs from Peter Michael's Bordeaux Blend, and Oracle Miner differs significantly from Overture.

Here are my "personalized" Vine & Cellar Recommendations from Preferbli -

This broad spectrum of flavors, styles, and price points barely aligns with my personal taste. It is a blunt-force tool vs a personalized recommendation engine.

There are so many ways to generate recommendations. Data science, known recommendation methodologies, and even proprietary algorithms will give decent wine alternatives and even incorrect selections that will still encourage discovery, resulting in a correlated lift from cross-sell and upsell.

But anyone who says they make a personalized recommendation engine based on a consumer's tastes, web history, or shopping behaviors is lying to themselves, the press, and whomever they are shilling their service to this week.

The Four Necessary Inputs to Create A Personalized Recommendation Engine

INPUT #1 - Individual Ontogenic Factors

When you see assertions like, "We've built the industry's first and only database of ~248 million US consumer drinking-age palates for wine," you get serious Elizabeth Holmes vibes.

Consider creating a user's taste profile, including genetic/physiological, cultural, and psychological factors unique to a single person. If we focus solely on genetic makeup to determine an individual's taste, we must map their taste and smell receptors to identify their preferences.

Let's (for a moment) suspend our disbelief and assume that a company could obtain a detailed analysis of a user's taste and smell genetics using the direct-to-consumer genetic testing kit from 23andMe at a serious discount of $50. The cost of genetically testing consumers at large would be astronomical. To emphasize how difficult this would be, 23andMe was founded in 2006, and in 2024, they disclosed they had only tested 14M people. Even if the company whose marketing line I quoted above acquired data in any and every way possible, the figure of 248 million doesn't even pass the sniff test because the total adult U.S. population is approximately 143 million (ages 21 to 59), with the core wine-drinking group being only about 15 million consumers.

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But we're still in our tiny second of suspended disbelief here. Let's say a company COULD acquire this data. What exactly is the data they are acquiring? Taste is, as we know, actually a combination of both taste and smell. These two systems provide data that our brains unify into what we experience as sensory perception. This occurs through an incredibly complex sensorial and neurologic interaction process that produces the "flavors" we experience. The number of combinations that inform our perception of taste is astronomical.

There are approximately 25 different receptor genes for taste. These contribute to the five basic tastes: sweet, sour, salty, bitter, and umami.

At the same time, there are around 400 functional olfactory receptor genes (we can detect even more, but for simplicity, let's stick with the four hundred).

Combining these senses to form a unified flavor perception can build an equation that each combination of taste and smell is unique. We can find out the range of variations in human experiences using simple mathematics.

• Varieties of Taste: Organizing the receptors of the five flavors into a power set formula (ignoring the empty set, which would mean no taste) gives us 2⁵ - 1 = 31 combinations of basic tastes.

• Varieties of Smell: Similarly, using a simple model that assumes how every smell receptor can be activated and ignores complexities (e.g., partial activation or overlapping scent detection) gives 2⁴⁰⁰ possible combinations.

Total Combinations:

To find the total potential combinations of taste and smell, you would theoretically multiply the combinations of tastes by the combinations of smells:

(2⁵ - 1) * 2⁴⁰⁰= 31* 2⁴⁰⁰

That's an insanely large set of combinations. Still, it isn't that useful for a computer to synthesize the math because how the brain interprets and integrates these sensations is even more complex than just multiplying the possibilities.

Our brains sometimes enhance or suppress certain aspects of flavor due to the presence of others. In real-world scenarios, not every theoretical combination is distinguishable or even perceivable by humans. Many combinations might result in similar or indistinguishable perceptions due to the brain's interpretation, which often simplifies the complexity.

Research suggests that each individual’s saliva unlocks or produces statistically different flavor and aroma compounds from the same wine.

So even with amazing computers, AI, and mathematical modeling to provide the full spectrum of the theoretical maximum analysis of individual taste, the actual perceptual experience of taste and smell combinations is governed by biological and psychological processes that reduce the practical number of unique experiences in a way that can't be predicted by AI or a computer algorithm—at least not currently.

This doesn't even account for a person's experiential understanding of a flavor. One of my favorite people on the planet, with a big heart and one of the most contagious smiles, Ntsiki Biyela from Aslina Wines told so many great stories about how her introduction to wine described flavors she'd never experienced. "So, rather than saying a wine has an aroma of truffles, say, she would use the term amasi, a local fermented milk product that would be very familiar to people."

This also doesn’t doesn't even account for non-flavor-based qualities like texture. Both Yoon Ha and Alder Yarrow often speak about a third dimension of taste—texture. How to texture layers onto our experience is not fully understood and is currently impossible to discern from someone's genetic makeup.

INPUT #2 - The Chemical Genetic Makeup Of The Wine

Even if you've done everything described above, you're still only a quarter of the way there. You'd also need to map the flavor profiles of any and every wine you wanted to have in your recommendation system. While the technology exists to map any wine in the world from the standpoint of its chemical components, the output is ultimately ineffective because when it comes to flavor, wine is much more than the sum of its parts. The components do not accurately reflect the Gestalt of what someone drinking the bottle would describe as the wine's "flavor." And, of course, the exercise of chemically mapping every wine in the world is not only a near logistical impossibility but also a financial one.

Every year, an estimated 1.4 million new wines are released across the planet. Purchasing, shipping, and testing all prove both logistically and financially impossible. At an average-inclusive cost of merely $20/bottle, that's $28M per year. EVERY YEAR.

Returning to reality for a moment, chemically mapping the most popular wines so that wineries can try to copy those components is an excellent methodology for creating a product that is likely to have a positive response from consumers. This is where a technology such as Tastry might work—helping a winery compare what it already makes against a target wine it wants to make and adding the components that will emulate the target wine.

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INPUT #3 - Situational Awareness

Externalities are a bitch. A personalized tasting engine can not predict or understand all the externalities that will influence how a wine tastes to a person in the specific moment when they are tasting. Here's a small sampling of the many types of things that might change the perception of a wine: -

• The foods they are eating in conjunction with the wine.

• Environmental smells. Are they near a trash dispenser, in an aromatic Indian restaurant, or sitting outdoors at a cafe with blooming honeysuckle?

• The person's physical state. Is the person healthy, or do they have a cold? Are they recovering from COVID-19, or do they have an underlying condition like Dysgeusia? All could severely influence their tasting experience.

• Their psychological frame of mind. Emotions

• Are there other sensory stimulus? Too cold or too hot? Is there music in the background? Susan Lin MW's research says it makes a difference.

• Or even more fundamentally, what lived experiences created a mental overlay of the wine or flavors? There's a well-known phenomenon called the Proust Effect, where a taste and smell can trigger a vivid memory from the past. Does the scent of NZ Sauvignon Blanc remind them of when they used to mow the lawn, a chore they still resent from their past?

INPUT #4 - the Magic that Makes it all work - THE FEEDBACK LOOP

The fourth and most crucial factor is the feedback loop of user preferences over time. Everyone who references the efficacy of Netflix, Spotify, and Amazon recommendations fails to understand why those personal recommendation engines are so effective and accurate. This has to do with them knowing what you are consuming and when.

They see movies, books, and music that you browse frequently. They know how often you listen to a song, if you finish a movie, when you stop a song before its completion, etc. That's a vast wealth of data that has no analog in wine.

Even CellarTracker or Vivino can't come close to tracking enough of anyone's consumption of wine to understand genuine INDIVIDUAL taste preferences. Most consumers using label scanning apps scan less than 10 wines annually, and most scan only 3-4. A retailer's average shopping visit involves viewing less than six wines per session.

Determining correlations from such small inputs yields very unreliable data. Companies that claim a quiz plus a few other user inputs will allow them to create personalized recommendations are misleading at best:

"New members first experience Firstleaf's one-of-a-kind technology with its advanced quiz system that analyzes 1 quintillion data points to personalize each shipment. With 98% of boxes being completely unique, Firstleaf works on an individual level through its first-party data and not with large-group flavor profiles. Firstleaf boasts a 96% accuracy rate once a member rates at least three bottles."

One side note: This is a stupid assertion. It only takes 17 questions, with 10 possible answers per question, to get to 1 quintillion data points.

Companies like Spotify emphasize that it takes hundreds of songs to create accurate recommendations, and those inputs include other user actions outside of listening feedback, such as skipping, playing, or adding to playlists.

No current wine software or system collects enough data from most users to give a personalized recommendation. Even with the minority of power users they serve, most systems collect limited information about how a consumer interacts with a specific wine.

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Label scanning tools are used to get information about a bottle of wine before purchase or to "journal it" a single time when you try it. Only the most insignificant number of users are obsessive enough to log each wine every time they drink a bottle.

That is in contrast to Spotify, which measures how often you play "Argue (I Can't Argue With You)" by DJ Suede to determine how much you like that particular style of music.

Building better recommendation engines using some key methods outlined above is a worthy and vital goal. The goals of some of the technology solutions are to catalog and map wine by words, clusters, data science, and more, which are noble aspirations, and some even provide helpful services. But when they make hyperbolic claims of efficacy, lift, and especially the ability to map a person's taste profile, they stretch the truth (at best).

Today, and for a long time, the quest for a PERSONALIZED wine recommendation engine is still science fiction, not fact.

If you don’t know George, I recommend you reach out and take the time to meet him. You’ll be better off by knowing him.

How did you become interested in the intersection of wine and digital tools?

What initially got my attention on the B2B side where Wine Industry Network operates was the fact that in 2010, wineries were still having to use a print directory to research product and service providers. Even then, that was an antiquated model for anyone looking for information, but it was equally ineffective for product and service providers looking for more meaningful interaction with prospective customers.

Could you share a noteworthy or exciting achievement or project at your company that excites you or is bragworthy?

I think I'm most proud of the first website we built for the Wine Industry Network. Even though we don't use that site anymore, I was pretty proud of how it came out because web development was not an area of expertise for me. We were able to build not only a better online directory than any other that existed, but an actual content marketing platform that we’ve evolved over the years making it so much easier for industry vendors to push out information that they'd like to share with the industry.

Name three wines you think are wonderful.

That's a tough one; I’ve had so many great wines over the years. Three of the most memorable wines I've ever had, I would say, begins with Joseph Phelps Insignia, a Gaja Barbaresco, I don't remember what vintage and my first MacPhail Pinot many years ago.

In your opinion, what makes the combination of wine and technology extraordinarily challenging?

I think that, with the wine industry, there's so much emotion tied to tradition, in particular with how we grow our grapes and make our wines, that the idea of leveraging technology more is counterintuitive to many people, especially industry veterans. However, necessity, being the mother of invention, has changed drastically in recent years, and I suspect 10 years down the road, we're going to see a huge technology impact in every aspect of what we do.

What key recommendations would you offer to a winery looking to integrate digital tools into its sales, marketing, or operational strategies?

I would make the same recommendation to any winery or vineyard operation looking to make a significant investment: do your homework, ask for referrals, and if you don't already have someone on staff who can manage the new program, go hire the right person, and don't cheap out.

In your view, what is the most significant obstacle wineries face when leveraging digital tools?

I think the biggest obstacle is simply that people don't like change.  It's just human nature that people get comfortable doing what they're accustomed to doing, and despite the fact that it may not be working, they're still reluctant to change.

Who in the world of wine today, whether winemakers, winery owners, writers, retailers, or collectors, do you admire the most?

I guess I like an underdog. I admire small, family-owned winery operations where everybody does a little bit of everything. I started at a small winery like that, and it was the best learning opportunity I ever had.

What aspect of wine do you wish you had a deeper understanding of?

I'm not sure I have a particular aspect of wine that I'm looking to understand better. Still, I will say that I love Italian wines and would love to spend more time learning about Italian producers and just drinking more Italian wine in general.

Are there specific wine styles you particularly enjoy, and are there any you tend to avoid?

As I've gotten older, my taste has definitely changed. I most definitely prefer a lighter wine, I guess you would say more of a European style, than the big, bold reds that I enjoyed when I was younger.

Can you recall the best wine you've ever received as a gift and the story behind it?

I had just started doing some consulting on the side and one of my first clients was Raymond Burr Vineyards. Raymond Burr had passed away, but his partner, Robert Benvides, was looking to open a tasting room and needed some help. Not long after I began I turned 40 and Robert gave me a bottle of 1966 | Graham's | Vintage Port which I still have! Maybe for my 60th we'll give it a go! 

If you want to see how great George is, please watch him connecting with two industry legends -

from Ciatti.

And Dale Stratton from Azure (+).

Next in the series Moshé Weizman from WINEing.

Highlighting talented people in wine and tech is such a wonderful adventure. Not only do I get to point the spotlight to industry veterans but also people who do the hard lifting without the benefit of the limelight. One of the up-and-coming stars of wine and tech is Justin Erb. Before Justin jumped into the world's hardest digital marketing category (wine), he earned his foundational digital skills at an agency and a fantastic luxury brand called Moleskine (IYKYK). Justin now runs O’Neill’s Vintners and Distillers digital efforts. I have had the privilege of working with Justin and calling him a friend. Like Andrew Groom, he represents the hardest segment of wines to market online. Talents like Justin and Andrew will be responsible for unlocking the difficult equation of attracting new customers to the category. We must nurture and honor upcoming talents like Justin to ensure our industry can overcome our incredible knowledge debt and continue adapting and innovating in an ever-increasing digital world. Otherwise, we will surely face our own version of Digital Darwinism.

Introducing Justin Erb -

How did you become interested in the intersection of wine and digital tools?

I wanted to focus my career on creating great digital experiences. I saw a lot of potential to help drive change within the wine world and was fortunate to have a door open for me (shoutout to Robert Chin). I joined the industry at the same time Social Media was shifting to a paid focus. Having to educate on the demise of organic reach was one of my first tasks. Now that I think of it, I actually still have similar conversations to this day…

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Could you share a noteworthy or exciting achievement or project at your company that excites you or is bragworthy?

One of my favorite recent projects was designing and launching a box wine with Neil Patrick Harris and the team at Wondercade. We wanted to inject games and fun into the wine experience with Game Box. The team at Wondercade over delivered with helping us craft incredible puzzles, pick up the box at a store near you to check it out.  

Name three wines you think are wonderful.

Everyday: Shameless of me, but I really do believe that Harken Chardonnay is one of, if not the best, under $20 wines. It's a great website, too.  

Date night: One of my favorite wine discoveries last year was Saintes Pierres de Nalys. I'd like to give a hat tip to Wine Insiders for introducing me to them. 

Splurge: One of my most incredible wine experiences was at Palmaz Vineyards. I love the vineyard's focus on technology. As for the wine, pick any bottle, and you will be happy.

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In your opinion, what makes the combination of wine and technology extraordinarily challenging?

If you asked me this 5+ years ago I would say lacking a belief that digital will drive results. I think that narrative has changed a lot, though. Currently, I would say the fragmentation within the three-tier system. There is a wide gap in connecting data; in some cases, it’s still not possible. 

Do you admire any digital companies or initiatives in the wine industry? What sets them apart?

One of my favorite platforms right now is Awtomic. The Shopify ecosystem has a lot of great subscription platforms, but one built around the complexity that wine presents is missing. I have been nothing but impressed with the thought that Awtomic put into the whole process. I think that will be a platform that many wineries shift over too soon.   

What key recommendations would you offer a winery looking to integrate digital tools into its sales, marketing, or operational strategies?

Bring key stakeholders along for the whole process. It pains me to have a great new tool that nobody uses. When we revamped our trade portal, I made sure to get input from our overall team as we designed it. Afterward, I knew it was critical to set up training and provide a clear way of working when anyone had questions. Overall, try focusing on only a few big projects because anything more will be hard for the team to adapt to. 

In your view, what is the most significant obstacle wineries face when leveraging digital tools?

Having the patience to invest for the long term is critical. We live in a world where immediate results are often expected. Many tools take time to not just set up but build momentum. Setting clear expectations with senior leadership is mission-critical to keeping faith with your digital investments. 

In your opinion, what makes the process of digital transformation particularly difficult?

I think it’s a combination of a lot of factors: old business models, multiple layers of gatekeepers, fragmented data etc. The retail part of the business greatly limits the art of the possible with digital from the supply side. This space is evolving but still leaves a lot to be desired. That can lead to thinking best summed up as, “Why even bother?” As more and more consumers order from a screen, it’s hard to ignore. 

What digital tools or technologies are you currently excited about outside the wine industry, and how do you see them potentially benefiting the wine sector?

I have to say AI, right? To be clear, I am excited about that, but I know others have already hit on that. CDP is another technology that I am excited to use at some point this year. The potential to help create a unified consumer experience across multiple touchpoints will be a game changer for the first brands in wine to get that right. 

How has the digital landscape in the wine industry evolved over the past few years, and what trends do you foresee in the near future?

The growth of e-commerce takes multiple forms. At this point, we seem to be setting up a new platform for retailers every other month. I think this will start to consolidate to a few key players, though. I’m bullish on Instacart becoming a backend leader and simplifying the process on the supply side. 

What are the key metrics and KPIs (Key Performance Indicators) that wineries should be tracking to measure the success of their digital marketing efforts?

To start, I think you want to have a POV on leading vs. lagging metrics. This helps to give a reason for why you would track engagements (leading) vs. just looking at sales (lagging). I’m also a fan of working from a hero metric that helps you say if we get this one thing right, everything else will work out. That metric will change based on what is most important to your business. 

What advice would you give to small or boutique wineries with limited resources that are looking to compete with larger wine producers in the digital space?

I think whoever creates the best experiences wins out in the end. You won’t be able to outspend or push media as hard, so play another game. I think many wineries only think about differentiation within wine and not branding. Scribe would be an example of a winery that has done a great job playing its own game. 

Name one or people you think are digital stars in the wine industry.

When it comes to visuals and copy, a few come to mind. 

Email: I think email marketing can get boring very quickly, so I'm always interested in anyone who puts effort into it. The Prisoner is one brand that consistently impresses me with its creativity. 

Copywriting: A lot of wine websites remind me of reading boring textbooks. However, Last Bottle is a bright star within the space who always brings energy to its copy. I recommend signing up for their email to see how you can inject energy into the message.

Next on Sips & Bytes - George Christie

Make no mistake: The wine industry is at a problematic crossroads. A litany of articles and reports have flooded the media landscape, accurately describing the challenges we face as an industry. Selling wine is no longer a cakewalk. In fact, it’s the hardest it’s been in decades, and it’s only getting harder.

Echoing our bad news was Karen McNeil’s sad-but-true message about the state of wine writing. She has every reason to be concerned; wine media is serious trouble.

How Wine Media Got Broken

One can attribute the decline of media in general to the internet and search engines, which have changed our focus from quality content to the chase for clicks.

You'll see many consumer-facing wine publications posting listicles, the worst being "The Best of <insert wine type/region here> RIGHT NOW" or those with headlines like:

●      Can I Ask for a Fresh Pour if There's a Bug in My Glass? 

●      How to Get Over a Hangover, According to a Medical Pro

●      Which Wines Pair with Halloween Candy?

●      Wine Horoscopes

Equally challenging and simultaneously liberating was the birth of online self-publishing tools like WordPress, Blogger, MoveableType, Medium, and Substack. They created a new wave of wine content and accessibility while delivering tsunamis of free content. How does one compete with free?

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You Get What You Paid For

To compete with free, these tools also spawned a wave of publications asking for unpaid contributions or pay based on article performance, further perpetuating the clickbait. For example, most Forbes "contributors" were originally unpaid bloggers and only financially rewarded based on traffic (this policy has slightly changed, with most contributors guaranteed $250/month if they meet some minimum conditions). While I am a giant advocate of blogging (and some ethical Forbes Contributors), the illusion that these writers are under any editorial oversight or even applying ethical journalistic standards while using the Forbes masthead to give the veneer of authority is a terrible injustice for consumers and media in general.

The trend has also led consumers to balk at the very idea of having to pay for content. As a point of reference, whenever I share article links  from the local Napa Register or SF Chronicle, one of the first comments I regularly get is, "Paywall, do you have a free version?"

Social Media’s Impact

Social media's transformational nature has changed how we interact with media. Most of our content consumption echoes the usage and size of social media posts, which are much smaller than traditional content or often in different formats like pictures or short videos (e.g., Instagram, TikTok).

Consumers have been forced into a new reality of micro attention spans, forcing traditional writers to consider building “snackable content” or find ways to present critical excerpts for social media distribution and consumption.

Despite all these challenges, we have an incredible stable of writers who dedicate their time to wine. Eric Asimov, Alder Yarrow, , Karen McNeil, Dave McIntyre, Robert Joseph, Sara Schnieder, , Matt Walls, Julia Coney, David Brown, Tina Caputo, Lisa Perroti Brown MW, Rebecca Gibb MW, Sean Sullivan, , L.M. Archer, Elisabetta Tosi, Anthony Giglio, Devin Parr, Adam Lechmere, Kelli White, Guy Woodward, Elin McCoy, Clare Tooley, Jason Miller, Tšepang Molisana, Samantha Cole-Johnson, Jeff Siegel, , Tim Fish, Malu Lambert, Anne Krebiehl MW, Jill Barth, Christina Picard, Allison Levine, Oz Clarke, Amanda Barnes, Joe Fattorini, Dorothy Gaiter, Andrew Jefford, Elin McCoy, Mike DeSimone, Jeff Jenssen, Kathleen Wilcox, Jane Anson, , Katherine Cole, Kathleen Willcox, Wink Lorch, Patrick Comiskey, Ray Isle, Joe Roberts, Lenn Thompson, Randy Caparoso, and soooo many more. We have incredible experts who have spent their lives understanding regions, styles, and grapes (e.g. Elizabeth Gabay MW, Peter Liem, and more) that should be elevated and celebrated. Here’s a great list of them on Twitter. 

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We also have an extensive, unique, specialized array of wine writers whose primary job is to rate and critique wine, like James Suckling, Joe Czerwinski, Neal Martin, Tim Atkin, Tim Fish, Jeb Dunnick, Antonio Galloni, Stephen Tanzer, James Laube, Thomas Matthews, Bruce Sanderson, and James Molesworth. As Robert Joseph shared - it is a very challenging vocation.

However, there is also a crew of, mostly old white guys or young natural wine fanatics, whose sole job is to promote the wines they enjoy drinking and denigrate all other wines as being inauthentic, from “Big Wine,” from what they deem as boring regions like Napa, Sonoma, Bordeaux, Melbourne, etc., or they consider dull grapes like chardonnay, merlot of cabernet. They build and perpetuate a wine culture around gatekeeping. Since most have never operated a wine business, they have lazy and often harmful takes on the industry.

Interest in Wine-Only Publications is Niche

Despite the cornucopia of stories about wine, interest in subscribing to wine-only content is niche. Most wine-only sites have less than 20K paying subscribers AND even fewer MAUs (monthly active users). Only the elite publications and content providers that are both digital and physical have more. Most are combinations of stories and reviews.

While traffic is not a meaningful measurement of true readership, it is indicative of a site's total addressable audience.

While some of these numbers may be low in total subscribers and MAUs, it can be reasonably argued that their job is not to serve general consumers but to influence the 11+% of the population that influences the rest of the wine drinkers.

You can see the ripples of their influence when you map the publications against the audiences that read them regularly.

Despite their size, these smaller publications carry a unique and significant value when measured over time, a fact that we should all appreciate and acknowledge but never mistake for direct consumer impact.

Creating and distributing content is a costly endeavor. Even if you pay decent rates and have a proper editorial infrastructure, you need meaningful subscriptions, advertising, or some NEW model to finance it.

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Unfortunately, as I mentioned before, modern consumers are conditioned to understand that content is free, and the challenge to get consumers to pay in, as Alder Yarrow so intelligently observes, is “a bull market for free content.” And it’s important to size the addressable market of consumers that will pay a yearly subscription of:

• $29.95 - Wine Enthusiast

• $21.99 - Food and Wine

• $49.95 - Wine Spectator

• $99 - Jeb Dunnuck

• $129 - Robert Parker

• $129 - Decanter

• $134.99 or $189.99 - Jancis Robinson

• $140 - Vinous

• $145 - Suckling

Competition for subscriber dollars is fierce in the wine publication industry, especially for those subscribing to multiple publications. Ask your wine-interested friends if they would pay $100/year for any wine subscription and see how they respond. As someone who writes for free on Substack, I can only imagine how this number explodes for all the writers working so hard to scratch extra income using this platform and how hard they need to work to earn even $60/year from a wine consumer.

Not to mention, these publications are all competing for many of the same consumers. If you were to subscribe to all of them, just these nine publications alone are over $850 per year. The trade versions of these same subscriptions are more than double that price. Fortunately, for wine review publications, and depending on their value in the market, the trade provides a consistent subscriber base because scores are essential for their sales and marketing efforts.

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This often feels like a growing challenge. Wine scores no longer drive large increases in sales, and so many wines are not even reviewed by critics. James Suckling leads the volume of wine tastings - about 40K wines per year. However, that is only a fraction of the nearly 180K new labels released in the U.S. annually, leading to a swath of wines that need top critic reviews.

Wine publications without subscriptions primarily earn revenue from advertising, so they must write about more adult interests than wine: spirits, beer, cannabis, cigars, and more. They need to draw as many viewers (not necessarily readers) as possible to earn higher advertising fees (another thing driving clickbait leads and litanies of listicles). Moreover, they will sell advertising for nearly anything.

With the decline of ad dollars, search tools are deprecating cookies, and social media algorithms are becoming increasingly difficult to influence to aid in content distribution; many of these companies are in more trouble than ever. We've seen this play out within the industry with the wonderful and beloved publication Wine & Spirits and paralleled outside the wine industry with Good Beer Hunting. Founder & Publisher Michael Kiser’s comments reflect two problems: the broken way media is funded and the belief that you can't simultaneously be commercially viable and still produce high-quality content.

Reaching a General Audience

But as I stated, the wine industry has a problem. We are not attracting new consumers, and a big part of the problem is that wine publications often target the same small, already dedicated echelon of consumers.

Some of us remember when nearly every local newspaper and lifestyle publication had wine features. Those days are gone. With the terrible challenges of print media (and now digital), many publishers determined these sections to be irrelevant to their readers and too costly to produce and maintain. As such, we’ve seen a mass culling of wine sections across the U.S.

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Today, very, very, very few periodicals or newspapers have a dedicated wine section. And the ones with over 200K subscribers have been reduced to less than ten outlets: NYT, WSJ, SF Chronicle, Food & Wine, Washington Post, Bloomberg, Robb Report, and Men’s Journal. These publications have a challenging job of speaking to a nominally wine-engaged audience while still appealing to oenophiles about wines they can actually buy and experience. Like some mainstream media, a few gravitate towards sensationalism or abuse their ink by writing about their personal passions with little to zero (or Zero Zero) value for actual consumers.

With so few publications or outlets covering wine, a dedicated wine writer requires a lot of hustle to earn a living. I'm fortunate to have so many as friends,  and I empathize with the challenge of their journey to make a living. They are always pitching stories, writing them for low pay, and then chasing payment from publications. As a result, it's a second or third job for many talented people. They compete against writers willing to couch surf across the world to live the wine lifestyle or against wealthy hobbyists who write as a means of getting invited on press trips or to attend high-profile tastings for wines they would never buy.

What’s the Solution?

To reiterate, wine media is in trouble because of the broader challenges with media, the size of the audience, and the challenges with creating a sustainable revenue model. And with wine itself now experiencing similar problems of declining interest, therein lies the solution for both. So, how can the industry fix this?

Wine companies need to advertise and support non-wine publications and demand that they create an independent wine section. We see Benovia putting up their cash to support local journalism. We need to see more of this.

The industry must find a pathway back into the daily relevance of society, and the great wine writers need more sustainable ways to earn a living and share the fantastic stories that enrich our magical drink.

Regional associations can also use some of their fees to support independent content creation so that the region's stories can be documented and shared. Virginie Boone and Sonoma Grapegrowers have already created an excellent example. Still, it should not be a dabbling but a full-throated investment in a powerful regional content program. This can also be done by supporting other great local efforts.

For example, Napa Valley Features is the gold standard for stories about Napa. It was built to support locals and is also fantastic for ecotourists or anyone interested in the region.

I leave you with these two great pieces of wine writing to enjoy with a beautiful glass. The first is from Andrew Jefford about wine writing and should be essential reading for every wine writer.

The second is a haunting and appropriate ode to the value of wine from one of the greatest wine writers our industry has ever seen, Eric Asimov.

Cheers.

Next on Transforming Wine - Most Online Wine Club Models Suck

Andrew Groom has one of the hardest jobs in Hollywood (or, in this case, the wine industry). He’s the digital engine behind The Wine Group. While running digital for wine companies, big and small, is challenging, it’s particularly hard for brands with most products under $10. He needs to be more innovative than typical wineries because he can’t depend on critics or scores; he often doesn’t have beautiful wineries to drive demand. In fact, he’s frequently up against small-minded industry critics who denigrate large wine companies. He also faces the headwinds of being part of a declining industry segment. And yet, wine companies like The Wine Group carry an enormous responsibility for attracting new customers to the category due to their price points, distribution footprints, and marketing budgets. Like everyone featured, Andrew is a thoughtful, knowledgeable, intelligent, and kind human. Having an agency background gives him a unique perspective as a digital marketer before starting his online wine journey at the “School of Gallo.” However, unlike most digital wine marketers, he had the opportunity to work in the spirits at Gallo and again with the spirits company Atomic Brands to gain a very different perspective for online wine marketing before returning to The Wine Group. He was the first ever chosen to lead their full online efforts and their entire digital transformation initiative. When you look at people responsible for driving innovation in our industry, he is part of a tiny group of change makers.

Let me introduce you to Andrew Groom -

1. How did you become interested in the intersection of wine and digital tools?

   I entered the wine industry in 2013 when social media was a budding idea for the category. Throughout my career, I have always been in digital-centric, shared-service roles on the supplier side, and this has always forced a focus on the intersection of wine and digital tools. 

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2. Could you share a noteworthy or exciting achievement or project at your company that excites you or is bragworthy?

   I must point to Cupcake's latest partnership with Netflix’s Love is Blind. Now more than ever, wine brands need to connect to cultural moments to build relevance, and I think that team did a fantastic job making that connection.

   

3. Do you have a favorite lesser-known wine that you believe deserves more recognition?

   I am always drawn to wines willing to eschew the assumptive category norms, whether price, package, place, or anything else. One of my favorites is E’ Rosso from Poderi Cellario. 100% Barbera from Piedmont, zero barrel aging, sealed in a crown-capped 1-liter bottle, and is usually very affordable. It has zero pretenses despite coming from one of the world's most storied wine-growing wine-growing regions.

4. What key recommendations would you offer a winery looking to integrate digital tools into its sales, marketing, or operational strategies?

   
   Focused, consistent content across all touchpoints can bring these strategies together well. This means ensuring that you say the same thing on a retailer’s product detail page as you do on your website or in a media campaign. Consistency is key.

   

5. In your view, what is the most significant obstacle wineries face when leveraging digital tools?

   The regulatory specifics of our category make it challenging for things to pivot quickly. For instance, countless new tools and technology are launching every day. However, when you try to apply them to the alc bev space, it can often become stunted or impossible. I’m thinking particularly about shoppable media and e-commerce enablement tools that are great on the surface but struggle when you get into the weeds.

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6. What digital tools or technologies are you currently excited about outside the wine industry, and how do you see them potentially benefiting the wine sector?

   I see the use of AI to scale content customization happening more often, particularly in categories like the beauty space. With so many different avenues for brand content to live, the scale seems less insurmountable with the growth of AI and machine learning. This is trickling into the wine industry, but I would love to see how we can leverage things like this more.

   

7. How has the digital landscape in the wine industry evolved over the past few years, and what trends do you foresee in the near future?

   The line between digital and brand marketing teams is blurring, which is a sign of growing acumen. The fog is lifting over e-commerce and how the retailer landscape defines it. Distributors and retailers have made clear investments in engaging in our category digitally that hasn’t been seen before. In the future, I believe we will see the focus shift more and more to owning, sharing, and deploying against data. I think AI will take on a more significant role and force many suppliers to consider our internal structures and how they may change.

8. In your experience, what are some common misconceptions or pitfalls that wineries should avoid when implementing digital strategies?

   Don’t overthink it. Digital marketing is not a separate practice; it’s simply another way of conveying a message and converting a consumer. It can give you more creative ways to bring your messages to life but ultimately is still beholden to the same outcomes as any other marketing tactic. So, don’t spend too much time slicing and dicing the perfect consumer segment or creative asset. Instead, focus on consistent delivery of your key messages to your consumer. And then trust the process 🙂

   

9. Name one or people you think are digital stars in the wine industry.

   Our distributor partners at Southern Glazer are building something special to meet our space's digital and e-commerce needs. There is a clear focus on capabilities, data, and the benefits of investing in both.

10. Why is marketing The Wine Group wines harder than, say, brands like Opus One, Mondavi, Duckhorn, or Rombauer?

    I wouldn’t describe it as necessarily harder, but rather just different challenges within our shared goal of growing the wine category. Something I find unique about TWG’s portfolio is our diversity of brands. We operate across virtually every price point in the wine category, and each requires a unique set of tools to grow. It also means a wide swath of gatekeepers to get to and through to reach consumers. I’m fortunate to work with an incredible group of marketers focused on each of their brands’ needs. My role is about connecting across the portfolio for efficiency and effectiveness.

    In terms of brand building, I think that what consumers want from a $10 box and what they want from a $100 bottle is pretty similar: a high-quality product that meets their needs. How that is articulated for those products is vastly different. Someone looking for a 5L box of wine may be more interested in its reliability over time, whereas someone looking for a wine appellated in a prestigious growing area may be looking for a unique addition to their special dinner. We look to consumers to tell them what they want and build brands that meet their needs.

    

11. What do you wish people would understand about wines under $10?

    There is quality to be had under $10. I think there’s an assumption that wine prices $10 and under are relegated to some negative connotations. The reality is that we still see some exciting sourcing with high-quality grapes at this price point. I also think there’s a perception in and outside the wine category that the totality of the category is meant for 1-2 occasions: red and white for meals and sparkling for celebrations. The reality is we have a right to play in so many other moments. Whether it’s a lively weekend party or a daytime beachside lounge, wine has a right to play, and we’re meeting that need with things like alternative packaging and marketing that shows where these wines can be. Franzia, one of the oldest wine brands in the country, has proven this to be true among younger LDA consumers who are purchasing just as often as their generational counterparts.

12. As one of the world's largest and most important wine companies, what are your thoughts on attracting new consumers to the industry?

    I think it is hugely important. And, as we face these shifts in our category, we have to be open to things we haven’t done before. You’re seeing it happen now in things like high-profile brand partnerships. The fact that some of the biggest areas of growth are products where wine is more of an ingredient is something we can’t ignore. Like it or not, consumers are clearly telling us that wine doesn’t have to fit into the historical box it has, and if we want to grow, we should be open to ways to eschew that altogether.

    I also think there is a lot of baggage regarding our industry in the social media space. “Traditional” social media channels like Facebook and Instagram are still discussed as community-building when they really are so far from that. However, consumers are still building communities in a more fragmented way in places like Discord. I would encourage brands that want to foster community with their consumers to consider other channels while looking to the aforementioned channels as a way to advertise uniquely.

    Lastly, we shouldn’t forget the value of the basics regarding marketing in our space. High-quality product content, imagery, tasting notes, etc., still matter, and making it easily accessible in as many places as possible is just as important as trying to be the first brand in a new digital space.

13. What’s different about marketing wine than spirits?

I think that spirits brands, in general, tend to be more focused on creating a clear sense of occasion and ritual associated with their products. So much of the messaging is about how and when the consumer should enjoy, whereas wine, I think, is often distracting itself with product benefits that may or may not even be relevant to their consumer. We hear a lot of folks advocating for educating consumers as a way to bring them in. I think that is true, but consumers aren’t asking for a depth of education. They’re asking for clarity on what’s important. “Fewer things better” has been a mantra for me, and it comes to life, especially in these cases.

Wow, that was a fantastic way to end the interview. "Consumers are seeking clarity on what's important." This quality makes marketers like Andrew stand out; they prioritize "the why" over "the what."

Next, on Sips and Bytes, we feature one of the beating hearts of the industry, someone who makes our industry better with every action, George Christie from Wine Industry Network who was recently honored for all his amazing contributions to our industry - https://wineindustryadvisor.com/2024/05/28/wine-industry-network-founder-george-christie-presented-with-innovators-award.

The wine industry both suffers and benefits from our latent use of technology. By being late to the game, we sometimes miss tremendous first-mover advantages. Sometimes, the choice of missing the bandwagon is forced upon us due to stringent alc-bev regulations (TikTok - get us an age gate!!!). Other times, we're lucky to be late and avoid shiny objects that drain time and money - Clubhouse, NFTs, Blockchain, Pinterest, etc. Periodically, we are fortunate to be in the late majority of the adoption curve, so the learnings from other industries can be successfully applied to ours. 

MARKETPLACES

One of those trends is marketplaces. On their face, marketplaces seem like good propositions. Their job is to represent products on a giant digital shelf to help consumers choose from the broadest selection possible and be able to purchase from a single shopping cart. They are responsible for marketing, customer acquisition, and customer service. 

Marketplaces will inevitably emerge in mature online categories. Frankly, they are one of the favorite VC models (the other being platforms with giant growth of Monthly Active Users - MAUs) and are driven as much by industry and consumer needs as investor financial support. Marketplaces usually earn their money by either earning a small part of the transaction or, especially, through disintermediating other sales tiers. That makes the wine industry particularly inviting with the ability to potentially disintermediate two tiers - wholesalers AND retailers. Or even more compelling, to disintermediate three tiers for imported wines. They generally either ship the products from a centralized warehouse or have the seller drop-ship them, or sometimes both (Amazon), and earn their commission from the sellers in the process.

But with wine, marketplaces are mired with challenges that don't exist in other categories. You’ll have to bear with me as I open the casing and share how the sausage is made. It might be a bit detailed and insider baseball, but it’s important to understand this model.

The Regulatory & Operational Challenges With Marketplaces

First and foremost, selling wine via consignment is illegal. This restriction is a remnant of the 21st Amendment to ensure the industry's three tiers are distinctly separate and that they cannot exert pressure or influence on the other tiers.

From Dickenson Peatman & Fogarty, "Tied-house laws are federal and state laws that attempt to prohibit brewers, distillers, winegrowers, and other alcohol beverage suppliers from exerting undue influence over retailers.  In theory, such laws minimize the potential for unfair business practices in the industry and protect against social ills such as over-consumption."

For example, if Wine.com were providing marketplace "consignment services” in conjunction with their retail activities, that would be a risky endeavor because it blatantly defies the tied house laws. However, retailers, wholesalers, and importers often try to skirt this concept through “extended terms,” which technically don’t hold up for regulators but often mirror actual business realities.

Because marketplaces are unlicensed entities, they need alternative ways to be able to sell the wine without acting as a retailer. To facilitate the mechanics of this, they operate as the "buyer's agent" or "seller's agent" and, in some cases, serve as both. Essentially, the site acts as an "agent" on behalf of the consumer to communicate the order of wine (s) to the seller. They then earn a fee from the buyer on behalf of that service. Providing these types of services requires convoluted financial mechanics behind the scenes*. 

Also, there are laws on how much a marketing agent can "avail" itself of the transaction. Regulators frown upon percentages of the transaction, which is ironic and ridiculous because every credit card company has been doing so since the dawn of that form of payment, and they never balk at those transaction fees. As such, many agents create strange pricing models, such as giant tables of flat pricing that equate to percentages, tiered pricing models, subscription plus transaction surcharges, and many other complicated pricing models. However, even with these models, they generally want to see the total amount taken from the agent to be at most a 10% amount. Some platforms  simultaneously operate as a "Seller's Agent" representing the retailer/winery to "facilitate an order on behalf of the seller." For this service, they can earn another 10%. However, 20% is lean margins to support platform development, staff, and customer acquisition costs. Some marketplaces charge more but are likely on very tenuous grounds for many state regulators and would fail if they were audited. 

Are you still awake? Let’s grind through the rest of the regulatory hurdles.

Even overcoming the revenue earnings, being a marketplace comes with some fundamental, challenging regulatory restrictions -

From Hinman and Carmichael - 

"Principle 1: Only licensees may engage in activities that require an alcoholic beverage license."

This refers to selling alc-bev, which means that a marketplace website is technically not selling; it is just a marketing site that collects customers and funds. That means they should be distinctive about telling the consumer which retailer(s) they are buying from.

"Principle 2: Licensees are ultimately responsible for the actions of third parties hired to conduct any activities involving the sale or marketing of alcohol on their behalf."

This is where the rubber meets the road. At the end of the day, the winery or retailer's license is at stake. So if they over-ship to a consumer, send adult beverages to an underage drinker, etc., the licensee will be at risk. Moreover, to facilitate these transactions, they either leverage the seller's license (which may have state and volume restrictions) or pass the transaction through a web of "clearing licenses."

"Principle 3: The flow of funds must be controlled by the licensee and third parties should not share in the profits, but may receive service fees. From the ABC's 2011 advisory: "the Third Party Provider cannot independently collect the funds, retain its fee, and pass the balance on to the licensee." 

*This is the sticky wicket that drives marketplaces crazy: a wacky electronic flow of funds often leads to an escrow account or an instant distribution across all the participating entities (which becomes more complex with more sellers in the transaction). While technology can solve this, it adds unnecessary complexity to building the system and managing the financials. I doubt that many regulators have audited the financial flow of most marketplaces, and if they did, they'd find them far out of compliance.

"Principle 4: Unlicensed third parties cannot take title to alcoholic beverages. The licensee must retain control over the storage and fulfillment of alcohol to consumers."

This also creates a litany of challenges because the licensed warehouse has to be where the winery creates a second inventory location at a centralized 3PL like WineShipping. Unfortunately, no 3PL shipper has earned the business of the majority of the industry. Still, sadly, it's often unprofitable for them or the winery if they are not shipping enough DTC or have too many slow-moving SKUs. The alternative is to have them drop ship it from their winery or shipping partner, which creates other challenges around cost. The first bottle of wine is an expensive lift, so single or small orders from multiple retailers are cost-prohibitive. If the cost is $9 for the first bottle, who will absorb that cost if the consumer buys three bottles from three wine sellers (essentially adding $27 total cost to shipping or $9 per seller)? The winery? The retailer? The consumer? From the marketing agent's 20%? What if it's two bottles? The floor for the price of the wine to substantiate subsidizing shipping differs per seller (retailer vs winery). Still, the economics only make sense if the bottle exceeds a significant SRP per bottle or a larger basket from each seller (generally six bottles+).

As you can see with the Vivino marketplace, no retailer will absorb the marketing agent fees and shipping for less than 6 bottles at a premium price.

On WineSearcher's new marketplace, retailers pass the shipping rate along to the consumer. It costs nearly $45 to ship three bottles of wine. Talk about a way to quickly dissuade a consumer from making a sale . . .

Shipping is a problem that ALL marketplaces must overcome.

Beyond shipping, marketplaces face tremendous operational challenges, starting with the complexity of products, such as proper wine matching, the geographic availability of the same products across multiple markets, limited retailer margins, consolidating inventory, and state registration for products shipping into a state. These create a complex web that is incredibly challenging to operationalize and maintain.

When you add that marketplaces have the same growth ceilings as etailers, it makes it hard to see how one can possibly succeed and why there is a graveyard of failure in this segment of wine and spirits.

However, every VC wants a marketplace, and many entrepreneurs continually see it as a viable model. Marketplaces are in vogue because, if built right, marketplaces eat markets. What does this mean?

THE INSIDIOUS NATURE OF MARKETPLACES

A marketplace is a kleptoparasite. This means that it steals the income and customers from businesses and makes them its own. But marketplaces are devious about how they have masked their intent. They promise an increase in sales, but essentially, they borrow a seller's inventory, capturing the margin for their services but, most wily, keeping the customer. Without the host, the sellers, and their inventory, they could not exist to steal customers for their own.

That's why when wineries or spirits companies point to marketplaces that keep the customer as their own, they are essentially surrendering that customer to the platform to realize the lifetime value of that buyer but also sell other products. Marketplaces almost always mature to manufacture their products. This has always been true. If you think of major mega-retailers (Costco, Target, Walmart, Safeway) as early analog versions of marketplaces, the built private label brands that dominate their shelves (Kirkland, Favorite Day + 44 other brands, Great Value +, Signature Select +, respectively). But unlike brick-and-mortar retailers. In that case, this has been especially controversial with web-based marketplaces that leverage data to create brands but also to put those brands at the top of search results.

There are also countless examples of other ways marketplaces game the system to the detriment of the market in which they participate -

• Doordash - Funneling sales away from non-participating restaurants.

• Doordash - Charging exorbitant and miscalculated fees to a restaurant.

• Expedia - Dominating SEO and preventing a small hotel from getting reservations.

• Amazon - Squeezing sellers with increased fees.

This is why a WineSearcher marketplace is not a good value proposition. When weighing the value of products sponsored for small ad earnings versus those participating in their marketplace at more significant margins, the new owners will always opt for the latter. I know many retailers watching their traffic closely since the release of the new marketplace and evaluating the ROI of continuing to advertise or look for other solutions.

Retailers and wineries who lend their inventory to marketplaces are building a kleptoparasite, not their partner.  And it’s not like we don’t have endless warnings from other industries.

This is made worse when sellers not only lend their inventory but also send consumers to these marketplaces -

Due to their inability to get the customer and realize the LTV (Lifetime value), very few specialized or credible retailers (Total Wine, K&L, Gary's, Wine Library, Zachy's, Wine.com) participate in these models unless they have giant users bases and the potential loss of sales is too high. However, when they do participate, marketplace sales generate the least value for the operations, both in terms of sustainability and profitability. 

However, marketplaces create value for retailers where the customer LTV has no value, just the incremental revenue for the seller. These are generally stores with an alcohol seller's license that have poor locations, anemic foot traffic, or their business model doesn't consider reselling to a customer on the web. Generally, these are convenience stores, smaller supermarkets, or liquor stores. Their value is any incremental revenue that the marketplace sends their way, and those marginal dollars help subsidize employees or other operational costs not supported by their current business. We often call these "Dark" or "Ghost" retailers, and like Dark Kitchens, they were born from COVID-19. Unfortunately, the reward structure for marketplaces is that the retailer with the lowest price earns the top spot. The results are that these Dark Retailers, who only want to earn incremental sales, race to the lowest price. 

This has significant brand consequences while also "lowering the lake" for non-participating retailers. There is even a trend of specialized niche retailers looking to evolve beyond the Dark Retailer model into Alc-Bev “Dark Warehouses” whose primary business is powering multiple marketplaces.

Since we are late to the marketplace game, we can be smarter by learning from other industry’s mistakes under the yoke of marketplaces (read this article from Eater about restaurant delivery services). We should speak with other industry leaders to better understand the positive and negative consequences of marketplaces. My friend and colleague, Nabeel Alamgir, has been leading the fight to liberate restaurants from the yoke of marketplaces and is not only an innovator in how he builds technology to solve this problem but also a vocal protagonist about the negative consequences they bring to an industry. We need to bring these types of voices to our industry and listen to their perspectives before a major marketplace takes root. Wine sellers need to understand how lending their inventory benefits the marketplace as much, if not more, than them.

But this especially includes how wine brands understand how participating and advertising with these platforms not only negatively affects their partners but also has negative consequences for their brands beyond the immediate gratification of some quick sales. This is most important now when the need to sell wine is so acute, but our decisions could create a monster of our own that will consume us in the future. Marketplaces eat markets.

Wow - that was nearly a book. I promise a much shorter piece next. Inspired by ‘s amazing article, “Nothing Left to Say? The End of Wine Writing,” I want to followup with a deep dive into the challenges of online wine content.

Working in wine and tech is a tiny community, and you quickly discover who is the best of the best. Most of us in this small corner of this industry are very familiar with the top tier disruptors, innovators, and operators, but that's not true for the broader industry. Most wineries, retailers, and wholesalers are often unaware of the change agents who are behind the veil of technology but making macro differences for our industry through digital innovation. One of the things I enjoy most about Sips & Bytes is highlighting these all-stars beyond our wine-tech circles and helping the rest of the industry know them and see their kung fu. 

Andrew Levy, the Chief Corporate Affairs officer and General Counsel for Provi, is one of those all-stars. Andrew started in law and found his way to the wine industry through one of the three corporate schools that build some of the best wine business leaders - Constellation. There, he moved from law into the guts of the business, helping catalyze sales efforts and successfully managing the unmanageable wholesaler tier. It takes superhuman intelligence, charisma, and patience to do that job. He then escaped, and as one of the many Ex-Cons (ex-Constellation), he stepped into one of the most innovative companies in recent alc-bev tech history - Provi. The 3-Tier system is simultaneously essential but also flawed and broken. Only three to four companies in history have had the appropriate model to become an actual Alc-Bev Unicorn (and not by market luck like our only other $1B Alc-Bev Tech exit).

Provi's vision as a B2B marketplace disruptor stands out from previous incarnations. If they can overcome industry inertia, they will be one of the industry's most transformative platforms to help the trade's ability to buy and sell wine. 

I met Andrew through Dale Stratton, another Ex-Con, and one of the three wise men (Danny Brager, Rob McMillan, and Dale). The first thing you discover when you meet him is that he is brilliant. Full stop. He also has an incredibly high EQ, which is probably how he successfully managed wholesalers, which makes him an excellent company and a good friend. Combined with his deep operational experience in the industry, his EQ makes him a triple threat. Andrew's fingerprints are all over Provi's business model but also woven throughout the wine-tech community thanks to his advice, partner enablement, and leadership. 

It’s my absolute pleasure to introduce you to Andrew Levy.

How did you become interested in the intersection of wine and digital tools?  My initial interest with technology began roughly two decades ago, amidst the whirlwind of the late 90s dot com boom, when I was a young attorney honing my craft. It was a time of frenetic innovation. However, the intersection of my tech intrigue with the wine sector emerged during my tenure in the commercial realm of Constellation Brands. During this time, we spearheaded the development of internal tools aimed at empowering our sales teams through the utilization of mobile technology. By combining various data sources and leveraging geotargeting and machine learning (way before AI!), we were able to derive product recommendations, significantly amplifying our field presence and enhancing point-of-sale impact.

Could you share a noteworthy or exciting achievement or project at your company that excites you or is bragworthy? 

Provi's mission is to bring greater efficiency to the beverage alcohol industry and the existing three-tier system. We are extremely proud that we've been able to scale our impact through the adoption of our B2B online marketplace by large national chains throughout the U.S., such as Olive Garden, PF Changs and Capital Grille. 

For these national retailers, beverage ordering presents a significant challenge as they navigate the complexities of managing their beverage alcohol portfolios across a multitude of distributors spanning various states. Crafting beverage programs for such chains entails setting corporate mandate lists dictating the permissible items across wine, spirits, and often beer categories.

Our marketplace effectively addresses many of these pain points, offering tools uniquely tailored to the intricate challenges faced by national chains. The impact on their operations has been profound. At the individual location level, we've helped streamline staff onboarding, enabling Beverage Managers to redirect their attention towards enhancing the overall guest experience.

On a corporate level, our marketplace facilitates effortless enforcement of product mandates and lists customized to each location, ensuring brand consistency across the board. Most importantly, we equip corporate teams with robust analytics, empowering informed decision-making regarding beverage programs. This enhanced visibility enables companies to optimize inventory levels and swiftly adapt to evolving market dynamics.

Having been in the industry as long as I have, it has been truly exhilarating to witness the tangible benefits of integrating technology within the framework of the three-tier system.

Name three wines you think are wonderful. 

Mazzocco Rockpile Reserve Zinfandel 2015: My wife and I discovered this on a wonderful trip to Sonoma with another couple. The trip was full of incredible memories that still make me laugh to this day. So, grabbing one of the few remaining bottles I have at home brings me back to that joyful experience. 

Marques de Vargas Rioja Reserva 2017: This is a bottle which I enjoyed on a trip to San Sebastien last year. This region will forever have a special place in my heart.

Perrier-Jouet Blason Rose Champagne: I originally purchased this as a wedding gift for a close friend but now save it for myself for special occasions.

Do you admire any digital companies or initiatives in the wine industry? What sets them apart? 

In my view, one of the most commendable developments in the wine industry is the increasing focus on the digital aisle. While the transition may not always be straightforward or uniformly adopted, suppliers of all sizes now recognize the pivotal role that digital content plays in shaping their brand identity and go-to-market strategy.

I believe Pix was onto something significant with its innovative approach to merchandising, user interface design, and harnessing data potential. However, despite its forward-thinking vision, Pix perhaps fell victim to the timing, entering a market that was still fragmented and evolving.

In your opinion, what makes the process of digital transformation particularly difficult? 

The biggest challenge in digital transformation lies in the dual misconception: some are hesitant or even fearful of technology, while others overly rely on it too heavily to fix all their problems.

The reality is, the crux of digital transformation lies in reviewing existing business practices, both within your own organization and among your partners, to identify operational strengths and weaknesses. Only then can you develop or procure technology solutions tailored to future needs.

Far too often, digital transformation initiatives falter or fall short because they digitize pre-existing broken or disjointed processes, rather than fundamentally reimagining and optimizing them for the digital age.

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Could you share examples of non-wine-related digital marketing campaigns that have inspired you, and what lessons can the wine industry draw from them? 

I've always been impressed with Apple's approach to differentiating its product lineup. The way they can appeal to high-end consumers with simplicity serves as a masterclass in brand building. While surveys consistently reveal that consumers prioritize price when purchasing wine, they often struggle to value their selection. This disconnect leaves a lingering 'bad taste' in consumers' mouths that even a $100 bottle of wine cannot cure.

The wine industry would benefit from adopting Apple's strategy of signaling quality to consumers in a straightforward manner. By doing so, the industry could empower consumers to navigate the overwhelming array of choices in the wine aisle with confidence, ensuring they feel more informed and satisfied with their purchases.

How has the digital landscape in the wine industry evolved over the past few years, and what trends do you foresee in the near future? 

The wine industry has made significant strides in providing direct-to-consumer technology platforms for wine enthusiasts. However, the proliferation of these platforms has reached a tipping point, resulting in a landscape cluttered with a myriad of confusing options that can overwhelm consumers. This is not sustainable in the long run, and I would expect to see further consolidation of these platforms.

What advice would you give small or boutique wineries with limited resources looking to compete in the digital space with larger wine producers? 

You can't be all things to all people. Know who you are and who your customers are at a deep level. Then, execute ruthlessly and focus on that. A focused strategy enables and empowers you to say no to all of the flashy, trendy "squirrels" that will entice and distract you.

In your experience, what are some common misconceptions or pitfalls that wineries should avoid when implementing digital strategies? 

Understand that your success is not someone else's responsibility. Your distributor, your e-commerce provider, and your shipper are not the owners of your success. You are. Recognize that you need to build your brand, sample consumers, execute sales initiatives, and innovate in response to or ahead of the market. Once you own that, you can prioritize your time and resources to win.

Next week on Sips and Bytes - Higlighting another digital Andrew Groom from The Wine Group.

Let me introduce Dr. Magalie Dubois. Professor of Wine Economics. It’s easy to see how incredibly smart she is —

• A Ph.D. in Economics from the University of Bordeaux studying under Jean Marie Cardebat and Larry Lockshin

• A member of the Elite European Association of Wine Economists

• A top instructor at the Burgundy School of Wine and Spirits

• She speaks three languages, but when you add digital and wine business, she is a true polyglot.  

But these are just the highlights. That’s why I featured Magalie on Sips & Bytes — because she’s leading the thinking and research we need in the wine industry for positive change. 

Discipline is fundamental for any academic. Patience is crucial for those specializing in the wine business. However, a wine business academic eager to comprehend the digital domain is the rarest of intellectuals and fueled by passion. That recipe makes up Magalie, a disciplined, patient, and passionate scholar and instructor of the wine business. Unlike some academics, she's not just grounded in theory but also in the real-world understanding of applied science, thanks to her eight years of experience as an export manager. This unique blend of academic and real-world experience has honed her wine business knowledge, making her not just someone with fantastical ideas but rooted in real-world problems.

The most impressive people I know and meet all share one quality: intellectual curiosity. It's the defining factor for people who change the world. As perpetual learners, they understand that the only constant is change and that understanding the universe is a forever journey. And that that's Magalie's superpower - intellectual curiosity. When you have a conversation with her, you see the sparkle in her eye as she asks you questions. She finds pearls of inspiration to create new and meaningful research from casual topics in your conversations. You immediately understand why she is one of the elite professors in the world who study the intersection of wine and tech. Magalie always asks all the good questions— the ones that press on preconceived notions and seek new truths. She's not looking for the traditional answers but what makes today work and tomorrow better. She's interested not only in the psychological motivations of consumers but also in new innovative ways to reach them. 

I look forward to every conversation with her, as I always leave feeling smarter and more inspired, a testament to the power of her energy, charm, and intellect.

How did you become interested in the intersection of wine and digital tools?

Online review aggregators have been game-changers for wine consumers seeking recommendations. This topic is the focus of my Ph.D. thesis.

Could you share a noteworthy or exciting achievement or project at your company that excites you or is brag-worthy?

My primary goal in life is to continue enjoying amazing wines for many years. As a researcher and wine marketing teacher, I strive to contribute positively to the industry. I initiated a monthly event, "Wine and Vine Expertise Thursdays," at the School of Wine & Spirits Business in Dijon, France. Each month, a local researcher presents their findings on various wine-related topics—such as consumer behavior, sensory sciences, and oenology—for 20 minutes, followed by a 20-minute Q&A session and 20 minutes (sometimes more) of wine sharing related to their research. This event, open to researchers and wine professionals, fosters a connection between research and the industry.

Name three wines you think are wonderful:

Subtil 2018 (Corpinnat Brut Nature) – Recaredo, Penedès, Spain

Sables & Schistes 2018 (Savennières) – Loic Mahé, Loire Valley, France

Marsannay Clos Du Roy 2018 – Sylvain Pataille, Bourgogne, France

Could you share your most memorable recent wine experience?

Recently, I traveled to Tenerife (Canary Islands, Spain), and after five days of hiking, I visited one of the island's most famous restaurants. The sommelier, in a great mood, crafted a unique Canarian wine pairing for me, jokingly saying, "my colleague will be very angry tomorrow morning." This was the most impressive wine pairing I've ever experienced. We concluded the evening with a bottle of wine she selected, joined by the chef, who was also her husband. Time seemed to stop. It was an incredible moment.

In your opinion, what makes the combination of wine and technology extraordinarily challenging?

The fragmented nature of the wine industry, characterized by a predominance of small producers, presents a significant challenge. These producers often lack the necessary resources—be it time, money, or human capital—to fully exploit the potential of digital technologies. This disparity hampers the industry’s overall ability to adapt and thrive in the digital age.

Do you admire any digital companies or initiatives in the wine industry? What sets them apart?

Companies like Winespace, LivEx, and Saturnalia stand out for their innovative approaches to harnessing data and technology. Winespace excels in converting free comments into actionable data, LivEx in providing a comprehensive trading and insights platform for fine wines, and Saturnalia in leveraging satellite imagery for vineyard analysis. Each of these initiatives demonstrates the potential of technology to add value and efficiency across different facets of the wine industry.

What key recommendations would you offer to a winery looking to integrate digital tools into its sales, marketing, or operational strategies?

Wineries should reconceptualize wine not as a unique artifact but as a product within the broader beverage market. This mindset shift is crucial for leveraging digital tools effectively, as it encourages strategies that enhance accessibility, marketability, and consumer engagement in ways that are responsive to contemporary market dynamics.

In your view, what is the most significant obstacle wineries face when leveraging digital tools?

The primary obstacles include cultural resistance, a lack of digital literacy, and the perceived high costs and time investment required for digital adoption. Overcoming these challenges necessitates a comprehensive approach encompassing education, training, and reevaluating digital tools as essential investments for future growth.

What wine do you plan to enjoy next, and is there a specific reason behind your choice?

I am heading to Austria to teach this week. I am a big fan of Riesling, so I am looking forward. If I find the time I would love to visit Alzinger. Hopefully, Klaus Egle will also guide me.

Name one or people you think are digital stars in the wine industry.

I had the pleasure of meeting Alder Yarrow on my last visit to California but didn’t get the opportunity to meet Justin Noland or Peter Jones. I’m also excited to someday put together a roundtable with Robert Joseph, Robin Goldstein, and you and some other leaders to brainstorm innovative ideas for the wine industry. However, what’s most needed in our industry is more female digital leaders.

Next on Sips & Bytes - Andrew Levy, the powerhouse helping change the face of wholesale from analog to digital

In 2004, a site called Woot launched and changed online retailers forever. The founders, Matt Rutledge, an electronics wholesaler, took a cue from brick-and-mortar sales techniques from the 80s and '90s, where they delivered a limited-time offer for consumers to come into their store for large discounted products to either attract consumers during slow times or deplete lazy inventory. Woot's offer was simple: every day, they'd have one offer, at a significant discount, posted on the site until midnight, and then the cycle would repeat over and over again. They had a fun, ephemeral style of marketing the products, but more importantly, they created a vibrant, active community (https://forums.woot.com/) that still exists today. 

In 2006, and surprisingly, Woot's first category expansion was into wine at wine.woot.com.

Their site inspired a tidal wave of Flash sites taking advantage of the financial pressures on businesses and consumers from the 2008 recession. With an ocean of unsold inventory and services, companies like Gilt, Groupon, Rue La La, Fab, and more launched. They sold everything from two-for-one pizza slices to half-off tickets to amusement parks and all manner of consumer goods. 

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In parallel, wine sites like Cinderella Wine (powered by Wine Library), the disaster Lot18, WinesTillSoldOut (WTSO), WineSpies, and more found a significant category in wine and emerged as wine e-commerce pioneers. With excess inventory from the recession, they were able to acquire wines not previously available for e-commerce. However, they simultaneously had to navigate the complex and retailer-unfriendly interstate regulations that hampered their growth plus the false stigma that a brand was in trouble if it was on a Flash site.

However, the Flash sale era receded almost as fast as it exploded. Consumer deal fatigue, coupled with business fatigue from poor customer delivery, both reduced sales and participants. Moreover, to increase profits, some Flash sites began to develop their own brands, often with price inflation, to misrepresent a meaningful discount. However, where other categories stumbled, wine continued to flourish and grow.

As for Woot, they sold to Amazon, but Wine.woot was shuttered in 2017 after Amazon purchased Whole Foods. The previous Woot founders returned to wine by founding Casemates, but due to increased competition, never the market prominence of their former company.

In the 15 years since the initial wave of wine Flash sites emerged, they have become a significant part of our small wine e-commerce ecosphere. However, the industry's view of Flash sale sites (and e-commerce in general) is full of misconceptions and misunderstandings. So, what makes these platforms work, and what makes them special? 

Flash sites are highly dependent on excess, at-risk, lazy inventory, or more (see below) - which, in combination with the volume of brands worldwide, the increasing challenges of the retail/wholesale channels, and the current declines in consumption and sales, they will have plenty of inventory for the next five to ten years. 

But, even if a winery has any qualifying points from above, it often still has to overcome its brand ego. I can't tell you how many brands I know in the wine industry (who have excess inventory) have told me that being on a Flash site would ruin their brand. Or that their scores warrant sales via DTC or traditional channels. But, only in the rarest situations, mainly with wines that market themselves as allocated or iconic brands like Sassicaia, Opus One, DRC, and Salon, that being in a Flash sale harms a winery's brand. But in reality, wines with ratings of 95-99 from top critics are sold on these sites daily.

Retailers often blame Flash sales for channel conflict or "lowering the lake." The benefit of these sites is they avoid being listed long enough for a price crawler like WineSearcher (which is increasingly becoming a marketplace and competing with its retailer partners) to record those prices. Again, only in rare cases is that true, but it does create a narrative of why a business should get a lower price or a refund. Tools like WineSearcher, combined with retailers selling at far below standard prices, affect wine brands far more adversely. I know three Flash sites that negotiate with wine brands by referencing the lowest price on WineSearcher. They then tell the winery they need to purchase the wine at a cost that enables them to sell it at 30%-50% below that lowest price.

Like a wine shelf, Flash sales have limited slots to feature wine, ranging from 700 to 150 placements. When you consider the quantity of wine in the US, that's a fraction of a fraction. Even if you add up all the major sites and assume there's no duplication, there are still only approximately 3,000 placements per year to earn.

There are over thirty Flash sites, but only about ten have a customer base of 250K to 2M active buyers. I've listed eight below.

What is remarkable about a Flash site is that people who buy from those sites are real wine lovers. They range from people at the beginning of their wine journey to avid readers of wine critics or explorers looking to find something new and exciting at a reduced cost. Above the midpoint of the chart, these buyers know the difference between Philipe Melka and Heidi Barret, between Russian River and Carneros, and between a Barolo and a Brunello. These consumers are a finite audience who are savvy enough to distinguish unique brands, wines, regions, varieties, winemakers, and reviewers. However, for Flash sales specializing in blue chip products or private labels, most of their consumers are less frequent drinkers, and their stomach/cellar share has far less capacity, so the total customer audience needs to be more significant. But because they are infrequent wine drinkers, their purchasing via these sites is far less often than impulse purchases at their usual physical retail options (supermarkets, wine/liquor stores, etc.). Moreover, standing out from the avalanche of Flash emails (especially for the consumers who subscribe to more than one site) has become more challenging than ever. 

However, the customer crossover is also fairly significant, and the wine gavage to stuff stomachs or cellars becomes painfully apparent. Most customers of these sites belong to at least two or three platforms. So, depending on their subscriptions, they receive between 600 and 3000 offers per year. Assuming they are on the lower side of that equation and only buy 10% of the offers sent to them with a purchase amount of 6-12 bottles at an average price of $30, they are adding 360-720 bottles to their cellar and spending between approximately $11K-$22K per year. Even if you half that equation or make it 1%, they still buy 36-72 bottles yearly. As a reference point, most wine fridges average 28 to 72 bottles. Like the first wave of deal sites, the probability of deal fatigue in this audience is palpable and exacerbated by the customer overlap between the platforms. Anecdotally, I've had conversations with multiple customers of these platforms who have unsubscribed from the deluge of emails to only belong to one or two sites. Or others who have told me they ignore or delete most of the emails. Most sites must find and convert new, less wine-engaged consumers to grow the category. Force-feeding the highly valuable, wine-engaged is not sustainable.

Remember that one of the fundamentals of wine is "getting liquid on lips." But that's a challenging exercise that increases in difficulty every dollar above $15 and exponentially above $20 SRP—it's normal human behavior explained by risk aversion. Most people are twice as willing to choose something that is a sure bet rather than risk an unpredictable outcome, even if the potential reward is higher.  

So, to encourage liquid on lips, traditional methods have been tasting rooms, wine events, winemaker dinners, and on-premise placements—especially wine by the glass. But in reality, all of these exercises are meant to reduce risk. And when you think of a Flash sale, they reduce the risk by lowering the price of wine for a minimal time and amount. Essentially, it encourages a paid tasting of that product. It is good for the consumer to discover a wine through these sites because after sampling the wine, when they reencounter it in the market, they have a reduced risk aversion coefficient, thus catalyzing a sale at a restaurant, retailer, or even the winery. 

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Using Flash sites to earn customer loyalty is not a hypothetical scenario but a proven model, evidenced repeatedly by various wineries. My favorite anecdote was a small winery out of Rutherford. They had a brand that was barely a three-thousand-case winery with a lot of lazy and at-risk inventory. Their neighbors warned them that going on a Flash site would signal to the market that they were in trouble and "ruin their brand." The CEO had the foresight to recognize that everyone telling them not to sell via Flash sales was doing it themselves. Their warnings were merely a ruse to protect their potential to earn one of the limited placements over the year. Their ownership shared the concern of brand damage, but the CEO also dared to tell them, "Pick twenty random people in a supermarket wine aisle and ask them if they know and have tried our wines, if even one has said they've known AND have tasted our wines, we won't participate." The challenge was accepted, and only one person had "heard" of the wine, but none had tasted it. But this CEO was way more intelligent than the average bear. After securing a meeting with the Flash site's ownership and earning their purchase of the troubled inventory, they did something brilliant. They offered to make a spotlight wine that would be a captive product for that site, not as a second or private label but as a fully branded product from the winery. They made the wine overdeliver in QPR (quality to price ratio). They made the wine to retail easily at $75-$85, but it sold on the site for $29.95. They made a 30% margin with nearly zero cost of sales. In year one, the Flash site purchased 56 cases. At the end of the year, the site purchased 6K cases (still at a 30% margin) and planned to buy 9K cases the following year. Customers who purchased the spotlight wine started showing up at retailers asking for the winery's product. Even more amazingly, they started showing up at the winery and buying their DTC wines at full retail ($125-$185 SRP). It was an absolute success. 

Flash sales are increasingly becoming features vs. a platform with many wine retailers, increasing competition of highly engaged consumers for wallet, stomach, and cellar share. More and more wine sellers, like Big Hammer Wines, are adding "Deal of the Day" to their offerings. Even more interesting is that wineries are also adding Flash sales to their e-commerce toolbelt. The most notable is Treasury Wine Estates, which owns over 70 brands and created The Wine Event. Not only was it innovative because AI entirely built it, but it was also a brilliant business initiative to service their large customer base and gain margins back from selling to Flash sites at low margins or a loss.

As I said, we view these platforms with a warped eye. Instead of viewing them as a sales channel, wineries must view them as a marketing exercise. You can put liquid on lips, and a brand can introduce itself to consumers. Very few places on the planet allow for the successful introduction of a brand to hundreds of thousands of high-purchase intent, qualified wine buyers with the endorsement of being specially selected or seed a market like a Flash site. Flash sites can provide more value to their winery partners when they understand their power and purpose beyond selling wine. Reports sharing the audience, click and buying responses to offers, and geographic and psychographic insights will amplify the value of being chosen as an offer and allow savvy marketers to understand their consumers and sell and market via geo-targeting to catalyze increased sales. Optimally, the best sites to partner with sell via deals and have multichannel sales tools (e-commerce and wine clubs). That way, they can hold prices and sell the wines for those who have tried them but also put them in programs that obfuscate discounting while driving volume and liquid on lips. Moreover, if they have a halo of expertise that helps consumers doubly feel like their choices have minimal or no risk. Companies, especially WineAccess and SommSelect, fit the profile and sometimes WTSO (depending on your brand/style). In fact WineAccess has already imbued this philosophy into their culture.

“We like to think of ourselves as a marketing arm of the winery. We can drive more awareness to a wine thanks to our highly engaged audience, coupled with our third party endorsement of the wine. We offer our consumers a trusted stamp of approval to buy and try the wines.” says CEO Joe Fisch.

Ultimately, the key to success is how well wine Flash sites find a whole new cohort of wine consumers and add value beyond selling wine and when wineries genuinely understand that the sites are not only a sales channel but a powerful marketing platform.

However, it's crucial for wineries to recognize that these platforms are more than just a sales channel; they serve as an invaluable marketing resource for engaging with highly qualified online wine purchasers.

Next - Marketplace eat markets - meet the true predators of wine online

The wine industry is home to numerous talented and exciting individuals, yet it hosts only a few exceptional people. Alder Yarrow is one of those outstanding talents. He is the godfather of wine blogging at Vinography, a fantastic wine journalist at Jancis Robinson, and someone who understands the wine industry intimately, but he’s so much more. I’ve rarely met someone with extraordinary capacity in both his heart and head. Alder is a rare talent in our industry. He’s the intersection between wine and tech, and he has a firm grasp on the wonders of wine and a deep knowledge of marketing and digital tools. And the combination of all this knowledge fuels his superpower to imagine and build brilliant customer experiences. In fact, co-owned and operated the agency CIBO which was sold in 2018

What isn’t as apparent to the world is Alder’s magical ability to see magnetic north. He has an uncanny ability to see the right path forward, even when inconvenient. I had the absolute pleasure and privilege of working with him as one of our best Board of Advisors for Pix (and candidly for any company I’ve ever worked for). Internally, I called Alder “our mirror of truth.” He’s reflected our actual reality, regardless of the team’s self-talk. He was objective and complimentary about our successes and candid about improving our people, company, and platform. And while Alder’s intellectual horsepower is evident, so is his heartpower. His capacity for understanding and empathy puts him in the highest echelon of caring humans. He cares - about his work, our industry, and the people who power it. When you speak with Alder, you immediately feel two things - the calmness that he exudes and how thoughtful he is in every conversation - about the topic, the people, the impact, and you, the person he is talking with. He’s a champion of many good causes, from being one of the founders of the Glancy Wine Education Foundation to the architect and engine behind the Old Vine Registry and so much more. On top of all of this, he’s a dedicated father and husband. Candidly, I don’t know where he finds the time, but our industry and the world are better because of him.

I enjoyed learning more about him in this interview and sharing his thoughts with all of you.

How did you become interested in the intersection of wine and digital tools?

You could say that my whole professional career has pointed me towards the idea, even if it has only rarely given me the opportunity to consummate the union of the two.

Since 1996, I’ve been working in digital marketing and online user experience, first at agencies owned by other people and from 2005 until 2020 at agencies owned by myself and a couple of business partners. Those dates, you will note, parallel the rise of internet technologies themselves, from HTML 1.0 to Web3. I began my career with a focus on Information Architecture, which morphed into User Experience (UX), and then over the years, I developed specialties in Digital Product Strategy and Brand Experience/Customer Experience Strategy. My firm designed B2B and B2C digital experiences and strategies for Fortune 1000 brands around the world, including Tesla, Google, Facebook, Twitter, YouTube, Cisco, Cypress Semiconductor, Franklin Templeton, Salesforce, SFMOMA, Subaru, Philips, and Union Bank.

So that takes care of the digital tools piece and the day job.

Now let’s talk about wine and the “night job.”

I’ve been writing about wine seriously since 2004 on my own site, Vinography.Com, which was one of the first wine blogs on the internet, and remains perhaps the most lauded. For the last 12 years I’ve been writing for Jancis Robinson on her web site. I judge wine competitions, speak at conferences, travel all over the world to taste, wrote a book, etc. etc. While it’s not a major source of income, and has always had to fit around the demands of the career that does provide the income, I take it pretty seriously.

Naturally, given both those sides of my life, I’ve had a keen interest in the intersection between these two domains, and have tried to lend my digital strategy expertise to topics in the wine world whenever the opportunity arises, whether that is speaking at conferences or writing occasional articles about the impact and implications of digital technologies on the wine world.

Oh, and then there’s always been lots of arguing on social media, especially with the dinosaurs who think that the wine industry can simply carry on the way they always have.

Could you share a noteworthy or exciting achievement or project at your company that excites you or is bragworthy?

Sadly, I’ve not had as many opportunities to apply my day job skills to the wine world as I would like, in part because my firm was expensive to work with, and few companies in the wine world could afford our services.

One notable piece of work at the intersection of digital and wine, however, was the complete strategy and design work to build the software platform Vincellar for the company Vinfolio. We conducted in-depth interviews with wine collectors of many stripes all over the US, and then used the insights gathered from that research to write the product requirements document, and then design the entirety of the application as well as develop the front-end code.

At the time it was the most sophisticated and usable wine cellar management software available.

It was immensely satisfying to use “both sides of my brain” on that project, and the platform was incredibly well received by users.

Name three wines you think are wonderful.

Here are three wines most people have never heard of that I think are fantastic.

2021 Jutta Ambrositsch “Kosmopolit” Gemischter Satz, Vienna, Austria

This young graphic designer-turned winemaker works in Vienna, where unlike almost anywhere else in the world, there is a large and thriving wine region within the city limits. Gemischter Satz wines were and are the typical wines of the Vienna appellation, made from a field blend of sometimes up to 20 or 30 different grape varieties. The wines are unique, delicious, and she designs all her own labels.

2022 Suertes del Marques “Trenzado” Listan Blanco, Canary Islands, Spain

Maybe, just maybe, in addition to being unbelievably delicious, this might be the single best wine value in the whole wide world. For less than $25 you can taste the spectacular alchemy of sea air, stark volcanic landscapes, and an ancient grape that sizzles with incredible acidity and citrus flavors. I can literally drink a whole bottle of this wine myself without any regrets.

2020 Gaia Estate Red Wine, Nemea, Greece

Most people when they think of Greek wine (if they think of it at all) shudder at the memory (or the reputation) of retsina, but there is so much more to Greek wine, including some amazing indigenous grape varieties. Made from the delicious (but hard to say) Agiorgitiko grape by one of the top winemakers in Greece, this light-to-medium bodied wine sings with bright berry fruit and a nice stony underbelly.

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In your opinion, what makes the combination of wine and technology extraordinarily challenging?

There are two factors I think, one that is cultural and one that is domain specific. Culturally, the use of technology in wine has always been hampered by the fact that it is possible to start, run, and grow a very successful winery without having any real digital expertise in house. That is less true today, but certainly for many wineries that have been around for more than 10 years, they may have built very successful double-digit million dollar businesses without having invested in much more than a web site. There are few other industries in which you can grow and become that successful without having significant technology expertise in house. Consequently, however, the wine industry as a whole doesn’t look at digital technology as a core competency that must be invested in and grown, they look at it as an expense. That’s a massive cultural barrier that holds the wine industry back in a major way.

From a domain specific standpoint, there are some complexities in the wine business that make broader technology plays (across multiple players) much more difficult than in some other industries. Combine the incredible proliferation of SKUs (that are constantly changing year to year in terms of product data and quality), the complexities of the three-tier system, the nightmare of state-by-state alcohol shipping regulations, the intensely crowded marketplace of competitors, and the subjective nature of taste, and it can be quite challenging to build powerful and useful solutions that address the main challenges of a broad set of stakeholders, whether those be producers, distributors, retailers, trade, or consumers.

In your view, what is the most significant obstacle wineries face when leveraging digital tools?

The lack of resources within their organizations that have the applicable skills. If they invested in hiring people who really understood digital tools (which likely means hiring people without much wine industry experience—something that wine folks are often loathe to do) those people could help both develop strategies and execute them, as well as make the case for where those organizations need to invest in platforms to support those strategies. Without people who know what they’re doing that actually work for the winery, digital adoption (forget transformation for a moment) will always be more costly and less effective.

In your opinion, what makes the process of digital transformation particularly difficult?

I don’t want to repeat myself here, but the cultural dimension is the hardest part. Digital transformation is fundamentally about thinking and working a different way in any business, and that means people have to change. People don’t like change. We fear it. And so every digital transformation initiative is only ever as effective as the cultural change that goes along with it. I’ve seen plenty of digital transformations (at some pretty massive companies) fail because people weren’t on board and ready to change how they did business. That goes for both executives and people in the trenches. New ways of working aren’t easy to inculcate.

How has the digital landscape in the wine industry evolved over the past few years, and what trends do you foresee soon?

I should say to begin with that I primarily have visibility into the consumer facing side of the wine industry, and may not be aware of production-focused tech of note. That said, to be honest, the tech landscape has changed a lot less than I would have hoped over the past few years. Since the rise of services like Drizly (RIP), apps like Vivino, or platforms like Provi, all of which have been in the market for several years, I think we’ve seen very little innovation. That’s, of course, why I was so excited about the potential of a platform like Pix, but I’m really surprised there haven’t been more real digital innovations showing up for wine (and no I don’t count the dozens of useless taste-matcher, virtual sommelier apps out there).

In terms of trends, I’m quite bullish on the power of AI, and so I expect some interesting solutions to eventually be built with it, though at first they will likely be (sigh) apps that try to predict what wines I will like. But once we get past that noise, I expect some pretty interesting things to emerge in the e-commerce, CRM, content-generation, customer support & engagement, and supply chain space.

What are the key metrics and KPIs (Key Performance Indicators) that wineries should be tracking to measure the success of their digital marketing efforts?

Oh boy. This could be a long discussion with a lot of “it depends” thrown in based on the specific nature of a winery’s business (e.g. the ratio of DTC to three-tier sales, the demographics of their customers, etc.) but for starters, here are a few off the top of my head.

• Customer acquisition cost – how much it costs, on average, to acquire a new DTC customer or mailing-list signup

• Follower growth – increase in number of social media followers

• Engagement rate – level of interaction with your social media

• Brand mentions on social media

• Brand sentiment on social media

• Conversion rate for each digital channel – what percentage of interactions result in new customers 

• Unique website visitors

• Organic traffic vs purchased traffic

• Bounce rate -- percentage of people who only look at 1 page of your site

• Time on site and pages per session – how long are people staying on your site and how much content are they consuming

• E-mail open rate

• E-mail clickthrough rate

• Time to respond to customer inquiry

• Average order value

Note that above I’m providing the category of KPI, not the actual KPI, which needs to be specific, measurable, achievable, relevant and time-bound, as well as aligned to the organizations overall strategy. E.g. Instead of “Unique website visitors” a proper KPI might be “Achieve a 20% increase to unique web site visitors from organic search in the next 6 months.”

There are obviously also a lot of KPIs around recurrent purchase rates, customer lifetime value, etc. that should be in the mix as well, along with a whole group of fairly technical SEO-related KPIs about the performance of your web site (page load times, etc.) but since your question was aimed specifically at digital marketing, I’m leaving those out for now.

What advice would you give to small or boutique wineries with limited resources that are looking to compete with larger wine producers in the digital space?

I’m not sure I agree with the implied premise of the question. If you’re a boutique winery, your competition in the digital space isn’t really larger wine producers. It’s other wineries at your size / scale / price that are targeting the same types of customers as you.

Competing for attention amongst your peers for attention requires dedicating the time and energy to do so. Someone has to do it. For small wineries with limited budget, that likely means the proprietor or winemaker – whoever is the face of the brand. If you can’t afford to hire someone to help you do social media and basic digital marketing, then you have to do it yourself. 

And the formula for doing that is fairly straightforward. Figure out who your customers are (demographically, psychographically, and specifically) and then build a real relationship with them. Speak their language, engage with them, show up in places they care about. Follow the social accounts they follow. Work on issues they care about. Give them a window into your story and your business. Be authentic. Be transparent. Be gracious. If you’re not sure what to do, look at some small wineries that do a great job like Forlorn Hope, Massican, Two Shepherds, Extradimensional Wine Co. Yeah!, or Martha Stoumen.

Connect with your customers, and cherish every interaction. Respond to every comment. Reply to every e-mail. And do it with all the energy and enthusiasm you can muster.

I know that’s easy to say and hard to do. I’ve been a small business owner myself. The struggle is real. But in this day and age, not doing it isn’t an option.

If you owned a wine brand, what would be the first three things you would do to prepare your winery for digital success?

You mean besides hiring someone whose job it actually is to do this 😉 ?

1. Find out who my customers actually are, what they care about, and why they are my customer. This involves actually talking to them. Not sending surveys, not reading the e-mails that come in from the feedback form on the website, but actually calling hundreds of them on the phone and talking with them about what role my winery and our products played in their lives.

2. Install robust CRM and social listening technology and integrate it into everything we do, so that it is possible to understand exactly when and how we have interacted with each customer, what they have been up to (like visiting our web site, reading our e-mails, or liking our posts on social media), and what their purchase history is like. This would involve diligently building a customer database (and moving all customer information into it).

3. Invest in the tools, resources and processes to establish, maintain, and grow a set of high-quality digital assets that can and are utilized by the brand across channels. This means product, lifestyle, facility and people photography; product tech sheets, shelf talkers, etc.; and content about people, products, places, vintages, events, etc. Once those have been created, then they have to be proliferated across the winery’s extended brand footprint. Which is to say, not just on our web site, but with distributors, retailers, social media, in our branded materials, packaging, direct mail, partnerships, etc.

Next week on Sips & Bytes - Wine professor Magalie Dubois.

Wine tech is a unique and increasingly valuable category within the industry. It’s a rare person who understands technology, wine, and, most importantly, the wine business. Who are the innovators, thought leaders and best operators powering the industry's digital engine? Those are the individuals I want the industry to know. And so I want to spotlight the best of the best, those whose thoughts and actions drive real change in our industry. So that’s what Sips and Bytes is all about. So please join me for the first installment featuring Peter Jones from Shopify. 

When you meet Peter, his thoughtful approach instantly captivates you. He absorbs every word in the conversation before returning a very considered response. With a deep voice and the weight of his deliberate thinking, he resonates with determination and lets you know he's serious about your conversation. But he’s a digital guy through and through. If you were to cut him, he would bleed e-commerce. And from his purview at Shopify, one of the world's largest e-commerce platforms, he's living the reality of the pace of online sales. But what sets him apart isn't just his knack for his intense conversations about technology but that his heart beats that of wine culture. Although he’s not from a generational wine family, he was raised surrounded by the vineyards and wineries of Northern California. Peter's not your average technology leader; he's someone who truly connects the spirit of Silicon Valley with Sonoma Valley. You can feel his passion for helping small and large wineries sell more wine online to consumers. It's his rare blend of wine wisdom and tech talent that the industry needs to create products that genuinely make us successful. Candidly, I don't think Shopify would be as successful in the wine industry without his understanding and guidance of a winery's needs. Peter is not only an employee of Shopify but also a true disciple of the platform. His combined passion for wine and Shopify makes him a force with which to be reckoned.

I had a chance to sit down with him and ask him some questions to share with the industry, such as how he thinks, what inspires him, and what he's doing to make wine online successful.

Tell me a bit about you . . . where you grew up and what you do.

I grew up in Santa Rosa, California, in the heart of Rincon Valley, and while we were close to some vineyards, I do not come from the industry. 

I co-founded Aesthete Wines with my brother in 2016 - just a few years after he acquired Dry Stack Vineyard in the Bennett Valley AVA -  with the vision to focus on producing the best possible wines from one of the best Sauvignon Blanc sites in the US. We’ve evolved to include Pinot Noir and now focus on making two unique expressions of each varietal that showcase the depth of the site and fruit and the immense talent of our renowned winemaker, Jesse Katz. 

Aesthete is intentionally direct-to-consumer and available in some Michelin Restaurants as well. We recently acquired more vines, including the former Truett Hurst property in Healdsburg’s Dry Creek Valley, where we will offer tastings, culinary experiences, and more. 

Many agencies and developers in the Shopify ecosystem are doing great work, including within the beer/alcohol industry. 

There are thousands of examples of alcohol brands on Shopify, including traditional wineries owned by some of the biggest publicly traded companies and local, family-owned operations. There are unique wine club models, urban tasting rooms, corner liquor stores, specialty shops, and even some big-box retailers. 

Robert Mondavi, The Prisoner, Simi, Ram’s Gate, 19 Crimes, Rabble, Avaline, Nocking Point, Pali Wine Co, Bright Cellars, Dry Farm Wines, Splash Wines, Wine Insiders, Somm Picks, de Negoce, Sage Society, Nomadica, Blackwells, Ludwigs, Bottle Barn, BevMo, etc. to name a few. 

How did you become interested in the intersection of wine and digital tools? 

My first e-commerce role in 2013 took my interest in tech to a whole new level. My fascination and curiosity with the tech industry continue to be a passion, especially after living in San Francisco for twelve years and getting the chance to work and learn at some of the fastest-growing SaaS companies in the world. 

These experiences, along with my passion and exposure to the wine industry as a proprietor, excite me for all that’s possible and what lies ahead for an industry that has been relatively slow to adapt to some of the best technological advancements ever. 

Could you share a noteworthy or exciting achievement or project at your company that excites you or is bragworthy? 

I’ve had the privilege of leading the wine and spirits go-to-market at Shopify, where the internal team continues accelerating adoption in the industry. In just a few years since its launch, Shopify has quickly become the platform of choice for all types of alcohol businesses of all sizes worldwide. 

Name three wines you think are wonderful. 

Pont Neuf - their Pinot Noir’s are truly exceptional and my favorite discovery over the past few years. 

Aesthete - I’m incredibly biased here, but Jesse has genuinely made some world-class Sauvignon Blancs since our inaugural 2016 vintage. 

Continuum—The impact the Mondavi family has made on the industry goes without saying, and it’s remarkable to see and experience what they’re doing over 100 years into the making. 

In your opinion, what makes the combination of wine and technology extraordinarily challenging?

Our human desire to stick with what’s comfortable. While the wine industry tends to think about seasons and vintages, tech is moving faster than ever. The trick is learning to leverage what’s applicable—everything may not have a direct correlation, but innovation within an industry often comes from outside an industry initially. 

What key recommendations would you offer a winery looking to integrate digital tools into its sales, marketing, or operational strategies?

Embrace change and invest in people willing to be curious and try something new and different, and you are very likely to come out ahead. 

In your view, what is the most significant obstacle wineries face when leveraging digital tools?

There is a fear of the unknown and a lack of support from leaders and/or decision-makers who insist on maintaining the status quo. 

What digital tools or technologies are you currently excited about outside the wine industry, and how do you see them potentially benefiting the wine sector?

Blockchain. Tech is moving so fast right now that I don’t think our brains can fathom the computational growth we’re experiencing. The next technology cycle will unleash more creativity and potential in new and exciting ways to empower creators, builders, entrepreneurs, communities, and consumers globally. 

Perhaps the benefit I’m most excited about for the wine industry is a more viable path to building a business that doesn’t require the antiquated intermediaries stifling the industry for far too long.   

What advice would you give to small or boutique wineries with limited resources looking to compete with larger wine producers in the digital space?

Be yourself, and focus on the quality of your products, people, and experiences to build a community around them. Remember that the large producers are playing a different game, so don’t assume their way is right for your brand.

In your experience, what common misconceptions or pitfalls should wineries avoid when implementing digital strategies?

Mistaking tactics and/or tools for a strategy is something I’ve encountered regularly. 

All technology decisions come with trade-offs, and while there are no silver bullets, any strategy that relies on a half-baked plan and nominal support from leaders is destined to fail. 

What software tools do you or your company use that make you super effective (e.g. Slack, ChatGPT, HubSpot), and how do you use them?

Definitely not slack! LOL

For me, it’s Shopify. The platform and ecosystem are unparalleled. It’s a unified solution with so many pre-built integrations and even more developers and agencies readily available to help solve any problem. Yes, even compliance and wine clubs. Allocation models, too ;) 

If you owned a wine brand, what would be the first three things you would do to prepare your winery for digital success?

Start building community as soon as possible. Invite people to participate in the process rather than wait until your release and/or opening. 

Invest in the best technology, which will enable a small team to execute today and future-proof your business in countless ways. 

Next week on Sips & Bytes - Alder Yarrow

I hope everyone enjoyed the E-tailer glass ceiling article. I am sending a quick follow-up apology for the multitude of errors in the email version. In my rush to publish the article, I didn’t update it with my final edits. I’m now realizing that I need to double-check before sending it and, especially, wear my glasses when reviewing and editing my work. Happy Monday!

Wine is an infrequent purchase from various retailers, different brands, and multiple purchasing modalities, i.e., people always buy wine differently based on location, needs, and availability. One day, you may buy groceries and add wine to your cart from what is available. The next, you are out to dinner with your friends and choose from what is on the list. Another day, a special guest comes to your house, so you go to the boutique wine shop. Finally, if you are looking for something special at a discount or delivered quickly, you might go online to buy it. This makes a wine consumer an elusive frequent customer: wine is so readily available and interchangeable that brand and retailer loyalty is a rarity. And this underlies some of the core challenges with e-tailing.

The actual time a consumer consumes a wine after purchase is clouded in endless wine lore; the theoretical estimated times vary from four hours to one week. However, the consensus of most researchers is that over half of the people buying wine intend to drink it within 48 hours of purchase. This provides significant headwinds for an online retailer to change consumer behavior, such as the patience to buy wine online, which requires overcoming shipping time and costs. Now, you may say that this is the problem with any e-tailer delivering a product, and to some degree, you'd be correct. However, most products aren't shipped in fragile glass containers, with ingredients that are susceptible to heat and cold and require an adult signature to be delivered. Still, wine has even more unique challenges that create incredible friction and a glass ceiling for how big a wine e-tailer can become. 

What would seem simple and the most basic of functions for any online seller, sourcing, and buying products, are not easy tasks for wine sites. It's crazy how complex the process is to stock an online wine store. Buying 19 Crimes, Bota Box, Kendall Jackson, Louis Jadot, Kim Crawford, Penfolds, Duckhorn, Rombauer, and many mainstream brands is relatively easy. But buying small-production wine is incredibly challenging. This is because the long-tail wines are for sale through a patchwork of small wholesalers. While SevenFifty (now owned by Provi) makes it easier to find who sells wine, a retailer must create accounts with many different wholesalers and importers to buy the wine. While this is merely a headache, the more significant problem is that they can ONLY buy wines from "the primary source wholesaler" (the only wholesaler legally designated and allowed to sell that wine in the state).

The intent was to prevent counterfeit products, but the actual outcome has only narrowed the ability to find alternative sources to purchase wines from alternative wholesalers. This both narrows selection and stifles market access for wines. Outside of their local state, retailers are also prohibited from buying directly from producers/importers without going through state wholesalers. This also limits market access for both brands AND products. A wholesaler may only want to carry one product but not the rest of a winery's portfolio. That means that if wine products are unavailable in a retailer's state from a wholesaler, it's impossible to sell them on the site or have to build a complex licensing network across multiple states to attempt to create a better sourcing footprint. It also means that the cost of those wines has a 25%-35% margin loss for the retailer or passed on to the consumer, inflating the final price. This is one reason Wine.com will NEVER become the Amazon of wine.

And, even if a retailer builds a multi-state licensing infrastructure, their inability to use a central warehouse and share inventory across those licenses is illegal, forcing them to duplicate inventory in multiple states. And because retailers are not allowed to have wine on "consignment," the carry costs for inventory, especially as you try to fulfill the smaller, more expensive, long tail producers, limit how the selection wine they can stock and thus sell. Outside of wine and other e-tailer categories, they succeed by stocking inventory without paying until the sale occurs, or they present the manufacturers' inventory to sell and drop ship (e.g., Wayfair, Amazon, Apple, and more.

Assuming a retailer is the David Blaine of selling wine online and overcomes the challenges of building an attractive online wine store, they still face an invisible challenge: the monumental feat of merchandising the wines on the site. Wine is a complex product with lots and lots of supporting data. There are over SEVENTY metafields of data for every single product. Everything from the name, the region, the variety, and the price to more nuanced elements like elevage, soil, winemaker, vineyard practices, grape clones, seasonal weather notes, and more. So many more. There are tools for document asset management that help overcome these challenges. Still, outside a few of the largest wine companies like Constellation, Treasury, Gallo, etc., few wineries use product information management (PIM) tools like Salsify or Syndigo to deliver the correct and current product data to seed retailer's sites. And even if they do, the way they use data in these tools has no standardization, and outside of the largest retailers, very few have the technical capacity to consume those data feeds or desire to integrate with dozens of different suppliers.

Additionally, most companies that create data feeds are only concerned with current releases rather than data from older vintages. They also tend only to provide the very minimal fields to support the wine to be listed for sale: size, price, variety, name, region, etc. Not the full spectrum of meta-data that a luxury wine retailer might be interested in sharing with their consumers. 

Here is a typical example of minimal product information retailers share with consumers. As you can see, it's not very helpful for consumers to make purchasing decisions.

But the challenge grows exponentially as you get into the long-tail wines and the changes in wine information thanks to the ever-changing vintage variations thanks to Mother Nature. Because there is no universal database for wine, there is no central repository for getting accurate information. The few sites with an extensive enough data set to power a universal wine database have built walled gardens and feel that data is their competitive advantage. Getting the data directly from the producers poses equally problematic challenges. Winery sites are notorious for making it hard to find the data. From wine data (often differing data) in the shop and the trade section or downloadable PDFs, barriers to wine information because the product is allocated like this winery or this winery. Or equally problematic, readily having information on past vintages still for sale in the market or possibly in consumers' cellars. Even big brands like Mondavi or Cakebread suffer from allowing past vintages to vanish in time. Compare this to the excellent representations of Silver Oak, Opus One, or Peter Michael. And let's not even get started on the wineries that don't have websites at all - here's a small example of one region with over half of the producers without websites.

Let's imagine a retailer rotating through 2K-80K products annually and paying $16 per product to collect, enhance, and publish a wine product on the site. The cost of just managing wine products means that retailers could be spending up to $38K - $1.3M, respectively. Even assuming the cost of the upper range is half or a quarter of that amount, the total effort to properly merchandise the store for a wine e-tailer is an incredible financial and resource burden.

Look at how richer the two experiences below are for a consumer when there is better information about the wine -

Contrast this against an incredibly expensive wine with no context or information, and what a disservice it is for someone trying to buy this bottle of Colgin.

Let's not forget the need/desire to overlay professional critics' reviews only content and operational costs for the retailer. Make no mistake, I believe that critics should be compensated for their work. Still, the current content partnership models are operationally and economically challenging for retailers to both match those reviews to products (or off-load those efforts to the critics) and only review a portion of the wines they sell with a subset of critics or pay for all critics and duplicate costs for many products buy licensing all the critics. As such, many retailers skirted critics' royalties by only entering their initials and scores.

Examples of retailers circumventing paying by only using initials and scores.

However, after passing through both the buying and merchandising gauntlet of setting up an online store, one can not ignore the regulatory weight that lies heavy on the shoulders of a retailer. In 2005, the wine industry had a landmark case to make it easier to sell wine online. Granholm was a game-changing case that unlocked the dormant commerce clause - if you allow intrastate commerce activities, you need to enable interstate commerce activities. This unlocked interstate sales for wineries, but somehow, retailers were excluded from this pivotal decision. As such, retailers can only ship to fourteen states and, like wineries, are restricted to volume purchasing limits (per household or person). These regulations limit how much a retailer can sell a customer in a period, regardless of the buyer's desire or capacity. The National Wine Retailers Association (NWRA) works tirelessly to unburden wine retailers' limitations and antiquated regulatory challenges. Despite resistance from opposing constituents, their success in implementing change is inevitable. Wineries have already paved the roadmap. They have, without any certainty, proven that interstate shipping does not induce underage drinking and allows for effective tax collection. However, when the inevitable shipping changes occur, the buying and selling power dynamics will favor retailers on the coasts or with large multistate footprints. i.e., even with shipping, retailers on the West Coast can buy and sell CA, OR, and WA (and others) wines cheaper than East Coast retailers, while the opposite will be valid for NY and European Wines.

Acquiring online wine customers is expensive. The customer acquisition cost (CAC) is estimated at approximately $168 per customer for qualified wine consumers. Extracting a meaningful lifetime value from that CAC is incredibly challenging due to their infrequent online purchasing behavior.

Now, assuming an e-tailer successfully overcomes ALL of these factors, the fundamental limiter that creates the ceiling for growth is more significant than these four factors together. The limitations to becoming the Amazon of wine online are in the product's DNA.

The advantage of online retailers usually lies in the diversity of their product offerings. As mentioned, scaling wine sales is often constrained by limited production. Nothing illustrates this more than a conversation I had with a significant online retailer after the end of the pandemic. They said they were down in sales. I empathized with them about it being an industry-wide problem, but they immediately disagreed. "We could keep doubling our sales, but now that the world has returned to normal, the wines that our customers love are being reallocated to restaurants and brick-and-mortar retailers. Before, we were getting 250-3000 cases of amazing brands, but now we are lucky if we get a few pallets. It's hard to make your numbers when you're limited in what you have to sell." So, the limitations of how brands, with consumer demand, allocate their wines to online retailers are the critical limiters of their success. The alternative is for these retailers to carry large-production wines. Since those wines are easy to find in the market, it essentially forces the online retailer to compete with local retailers on price, convenience, and immediacy (two of the three are always a losing proposition for the e-tailer). That means that for an online retailer to be successful, they need significantly larger quantities of boutique or high-priced wines, which, by nature, have a limit on how much they can allocate to the retailer or even make and, even if they were magically able to grow, they are no longer boutique or unique. This is very different than most other online products. When most other products, even long-tail products, succeed, they make more. That is an impossibility with wine. And that is why the constrictions of wine production become the limiting factor for an e-tailer.

When you add all of these up, they combine to become a multifaceted puzzle that has stymied online wine retailers like Wine.com, Winlibrary, and more to never exceed $500M in annual sales. In comparison, a retailer like Total Wine, which is "clicks and mortar," can sell across the spectrum, fulfill the consumer's needs across all channels, and solve many regulatory barriers by having a large geographic footprint to conform to state regulations and overcome volume limitations. It's the ability to serve a customer across multiple buying occasions, across various channels, a large selection across price points and brands, with a sprinkle of products only available at their stores, are the essential ingredients that make Total Wine successful and can not be replicated by a pure-play online retailer. 

Are there unconventional wine-selling models that can break the glass ceiling? Let’s explore Flash Sales sites next . . . 

So, what factors inhibit the success of digital wine startups? First, we need to identify some key attributes of wine that, when combined, make it a unique consumer product: 

• Wine is alcohol - there is no getting around the fact that we sell an adult product that, while having some health benefits, is not healthy at high consumption. There is a limitation that someone can, or equally importantly, that we want to sell to a person.

• Alcohol is regulated - Because we are an adult beverage, there are regulations in every country, or in the case of the US, every state, to help mitigate abuse.

• Wine is an infrequent purchase - i.e., an occasional drink bought from various sellers across many brands and products. Because it is alcohol, it is not consumed at the frequency of food, water, other beverages, etc. You don't have it at breakfast; few people have it at lunch, and for health reasons, it is not consumed daily by average consumers. And when it's appropriate to consume, unless you are passionate about wine, there are many substitutes (spirits, beer, seltzers, RTD, cannabis drinks, and more) to consume. Most often, if you consume it as a social drink, the economics favor the other drinks (buzz per buck).

• Wine is not singular. It ranges from being an inexpensive adult beverage whose primary purpose is to deliver alcohol. But wine is also a delicious communal drink for occasions, food, and friends. But wine can also be an ultra-luxury item used for investments. It spans the entire range from everyday consumer goods to exclusive luxury items.

  

• Boutique wine is often expensive - Even if you are passionate about wine, many wines are a luxury purchase. Assuming you consume wine daily (after work, at dinner, happy hour, Netflix, and chill), the cost to enjoy most of the category ($25-$40+) at that frequency is prohibitive.  

• Wine is heavy, fragile, and expensive to ship.

• Distribution is unequal - Because of the routes to market, the production quantity, shipping regulations that prevent you from buying wine from a single universal retailer, and the cost of shipping, all wines are unavailable no matter where you live.

• Wine is a super long-tail CPG category - no other consumable has the selection that wine does. Other super long-tail products like books, music, and movies (which we should study) can be analyzed and cataloged using technology and, even more importantly, delivered digitally. Moreover, those products have a median price point no matter the price point, where the price significantly increases as you move down the long tail. Some estimate that the world creates almost 1.2 million new wine products annually (most staying in their local market). The US TTB (the government agency responsible for national alcohol regulations) approved nearly 180K new wines last year alone. And most of those wines are good in the market for two to twenty years, making it a compound problem. Rough calculations put the market at nearly a million different wines for sale per year in the US (that does not account for the same wines in various sizes): everything from old sauternes and ports to newly released canned wines.

  

• Wine is ubiquitous - There are so many more convenient places (grocery, liquor, convenience, wine stores, and more) to buy wine vs. on the internet. And with so many wines available, substitution is an easy solution to getting wine to drink. Moreover, wine is often an impulse purchase; depending on the study, most is consumed within 48 hours or the first week after a purchase.

• Wine is complex (both a bug and a feature) - A fundamental magical attribute of wine is the variation in flavors across regions, varieties, styles, winemakers, vintages, and more. And, with some regionally mandated rules, typicity is no longer guaranteed. Often, the people who are particularly attracted to wine are intellectually curious and enjoy the exploration not only across all these variations but also to understand the attributes of a single bottle. Unfortunately, too many oenophiles believe that other consumers think like them or, if educated, would appreciate the journey as much as they do. But in reality, most consumers see wine as a wonderful, and often communal, adult beverage. The assertion that people even want to be educated about wine is incorrect. An analogy would be if people needed to be educated before watching a movie, reading a book, or listening to music. For example, I may love a catchy tune, but I am not interested in understanding music, genres, artists, producers, etc. However, some people are passionate about all these attributes. Whereas most consumers want something that "just doesn't suck," and that risk aversion increases with every dollar added to the price of the wine.

  

• Wine is subjective - Even with this understanding of wine, what you like may differ from your friends, spouse, or guests. Outside of one person's sensitivities, the taste is also affected by a plethora of environmental influences (company, time, temperature, mood, food, smells, etc.); like the three-body problem in physics, it creates an impossible challenge to guarantee how a wine will taste.

  

• Most of the long tail is limited in its ability to grow. Unlike other CPG or long tail products, the ability to scale the production of wine is impossible because it is constrained by the land, the yield, and what is already in the barrel. That means they cannot grow the business through increased production even if a small winery quickly becomes incredibly successful (e.g., through a 100-point score, excellent press, or celebrity zeitgeist). The only lever they have is increasing their price. Also, that creates the limitation of marketing/operational spending and a ceiling for the potential market opportunity for boutique wines. One can calculate estimated spending by multiplying production times SRP.

So, what is wrong with current online models? Peeking behind the curtain at top digital wine categories, the challenges above quickly emerge and impose limits on scalability and revenue potential across each model.

Up Next - The Limits of Online Retailers

What does it take to create one of the world’s largest wine platforms in just eighteen months? It takes a Herculean effort. From an extraordinary team. Made up of people willing to balance years of experience with the humility to learn an entirely new set of skills.  None of us have done this before — because nobody has.

Together we’ve built Pix in the open for others to see. We've created a platform that's free to use and list for the benefit of both wine sellers and wine lovers. A platform that connects them, rather than inserting itself between them. Making Pix this way is part of our values. And so is sharing what we've done — but that's hard. Thanks to the encouragement of Erica Duecy, our Chief Content Officer, I'll be sharing our story and learning on our blog and trade content. But for now... what have we learned? What have we accomplished? What can you take away from that? And what is next for Pix?"

What we set out to accomplish

In taking on this project, I considered both the giants who came before me, as well as the existing players, who view the wine world very differently than we do at Pix. The first problem with wine is that everything is locked away in rooms where the owners see the data but use their software as a moat. Data and software are not defensible strategies. The second problem to solve (for everyone's benefit) is how we help consumers at their moment of maximum hardship — the point of purchase! And third, how do we help wine sellers connect to the consumer at that same pivotal moment. Wine sellers here means producers, who sell to sellers like importers, who sell to sellers like distributors, who sell to sellers like retailers and restaurants. We needed to solve for everyone who sells wine.

We’re building Pix in the open, and sharing what we can. Pix is not a tool whose value lies in charging you for information. Our starting point was solving the consumer’s problem; making wine discovery easier. We connect everyone, creating a meta-layer of interactions; so producers can communicate directly with consumers, partner with retailers, or collaborate with regional associations.

It’s not our job to be part of the transaction — and never will be. It’s Pix’s job to help the buyers and sellers connect. We followed the leadership of our friends at Lunchbox.io by removing ourselves from the transaction. No percentage of the sale. Zero. Zip. Zilch.  The wine industry needs another intermediary like it needs a lobotomy. Pix will never sell wine and so will never compete against the companies we serve, wine sellers. We care about where the consumer is buying. It doesn’t matter whether you are a big retailer, an enterprise winery, a local wine store, or a boutique winery, our tool will help you. We will never attempt to convert customers to our market, so we can sell our own wine at higher margins. Pix needed to remove the friction between consumers and trade. There is no listing fee and no subscription, just a pure and easy search tool that helps connect buyers and sellers. It’s said analogies “can make one feel at home”. We knew we’d arrived home when we were told “Pix is Google for wine”.

What were the other big decisions we made? We decided not to replace humans, but to augment them. Instead of teaching the machine how to recommend wines, we taught it to emulate how we humans do it. That means we weren’t trying to create some kind of automated palate matcher (an absurd notion) but to learn from the consumer what they liked and to inspire them to discover new wines through content and curation. We needed to become a discovery platform. It wasn't to decompose wine into its core components and then reconstruct them again into a similar wine. It wasn't to use metadata that doesn't take into account the totality of what is in the bottle. It was to use technology to offer human answers to human problems.

The scale of the challenge is extraordinary — building a search engine for the largest consumable good category in the world is hard. As I mentioned in earlier posts, there is no central database of wine. Everyone who owns a database (except Liv-ex, who specializes in fine wine) balkanizes these pools of data as if that is a competitive advantage. Limiting access to the data creates a perpetual cycle where everyone keeps recreating the wines and their metadata over and over again. This is a huge brake on innovation and success that is holding back our industry. The moats from the incumbents have kept competitors at bay. But also keep innovation at bay that would benefit all. To give you an example, Pix features  270,000 + products. If we were to assign the metadata for those products and write content for each one, at a cost of $2-$10 per product, we would spend up to $2.7 million and we'd only be getting started as we'd be adding new wines every vintage both backward and forwards in time. That $2.7 million cost faces anyone wanting to create a tool that requires vast amounts of wine data.

This structure also means the consumer message belongs to intermediaries. We fundamentally believe that the responsibility to own the message belongs to the wine brands. It was inherent in our mission to connect buyers and sellers and allow wineries to tell their own stories, without us as the delivery tool.

But a vast ocean about wine data with a search engine on top doesn’t solve the consumer problem. It only helps people if they know exactly what they are looking to find.

It’s all about discovery

We are building the world’s first discovery platform. The word “discovery” is essential. Essentially our job is to help wine buyers discover the wine they are looking for, discover ways to buy that wine, and discover other wines to buy. 

Discovery has three key elements:

1. It must be simple but thorough.
   There are many ways of supporting wine discovery But most make it harder for the consumer, not easier. Some consumers love reviews from critics, others want consumer reviews, and some want none at all. Many of the traditional wine tools also proved to be confusing and off-putting like flavor wheels, food pairings, and flavor scales.
   
   How we solved the problem is we met with our friends at Netflix and followed their path. Our wine team is creating thumbnails of the wine by using meta-tagging, as Netflix does. Our three keywords are style, flavor, and story.
   

2. It must be useful.
   We’ve created a simple search bar that helps you find things easily. Looking for wine, winery, brand, region, or variety? Type it into the search. That’s standard.
   
   The cool magic at Pix will happen when you type in other parameters: e.g winemakers names, chillable reds, stone fruit, pizza, and more.
   

3. It must be small
   The paradox of choice is real. Search any brand, variety, or region and the choices are overwhelming. The key is to take a cue from other super long tail categories like music, movies, travel, and books.  Again, for inspiration, we looked outside of wine to Audible, Spotify, Netflix, Amazon, Comixology, Expedia, and more. We called our friends, colleagues, and experts in these companies and the result was our Collections. These are wine groups created by Pix, as well as third parties and collaborations and they are meant to make the selections smaller and easier to discover the wines that will bring you joy. Wines with dogs on the labels. 100 pt wines from the Wine Advocate. BIPOC wineries. Great Zinfandel with under fifty case production. Etc., etc., etc.

Things we learned

We've built Pix in the open. And I've always wanted to share what we've learned so you can use our discoveries and launch your own, better startup.

First, our mantra, that we say over and over again: “Perfect is the enemy of good, good is the engine of better. Fast gets good better than good gets fast.” This phrase is fundamental to building a startup. The final products, processes, etc. are likely going to be very different from the way you first imagined it. What ensures success is good execution.

Fail fast, fail forward. Failure is inevitable in a startup. Give your team permission to fail but create a process by which you can take what you’ve learned and make things progressively better. 

Usage is our oxygen. The only way to understand how well something works in software is to have active users. This helps uncover the best value exchanges, challenges, and incorrect assumptions.

The 10/100/500 rule. Creating a startup is challenging and often what we think is supposed to happen, rarely does. And facing a large task is often paralyzing. As I mentioned earlier, the key to success is execution. By breaking things down into smaller pieces, you can quickly understand the task, flaws in the process, and how to scale it. We’ve codified it into a patterned process:

1. The business leader does it ten times to understand how to build the framework, find flaws in their thesis, and identify patterns to solve. 

2. Then they add limited staff to do it one hundred times and find where there were challenges they missed in their test, edge cases, and instructions. 

3. Finally, you deploy it to a larger group of people to uncover additional hurdles. But most importantly how to streamline the processes to scale the operation. 

It works with all sizes of problems and is especially helpful to create momentum. 

Iteration over planning. The old Mike Tyson quote, “Everyone has a plan 'till they get punched in the mouth,” is relevant in business too. We can anticipate how things are going to work/resonate but until they go live, they are only theories. The best way to find out if something is going to work is to start small and learn and iterate. This is better than a long, protracted planning process that aims towards a target, but which will never manifest.

The light encourages growth and disinfects. This is why I like Slack and encourage a company to do as much in public as possible rather than emails and DM’s. It is often challenging and requires people to have a lot of trust and compassion. But by doing so teams can quickly collaborate on items or stave off mistakes/misunderstandings.

In the early days, hire player-coaches with intellectual humility and curiosity. Contrary to most startups that hire employees at a discount, or senior executives who bring their own teams, we believe in hiring experienced stars. Their abilities to both do and build at the same time may be more expensive initially, but the long-term cost savings and better decisions build a much stronger company. But hiring experienced leaders can only work if they have a key trait: intellectual humility. Despite their previous success, this will be the first time they have ever done this type of business, in this environment, with this new team. They need to understand that as a limitation and have a keen curiosity in learning while applying what they know.

Frameworks and processes scale, people don’t. People are the engine of a business. But they have limited time and energy. By having your leadership team create processes and frameworks, it’s easier and more effective when the business needs to scale its operations. 

Teach teams to solve problems vs fixing them. Too many startups see the avalanche of problems and pull up their sleeves to fix the problems. But the avalanche never ends, it just grows and will consume your team's time until they break. But solving problems allows the teams to maintain momentum while taking on new challenges.

Wardley Maps, JTBD, Agile Software Development, and Slack. If you aren’t familiar with these business tools, Google away and spend one month on each one to understand, even in a small way, how to apply them to your business. 

Challenges we faced

Remote working. We started Pix in the middle of a global pandemic — which came with advantages. The industry was awake, remote working and hiring were the norm, and we had time to focus on building. But, despite the high performance and speed of such an all-star team, building interdepartmental work and culture proved challenging. As great as remote work is, it lacks the dynamics of team building and culture. It also doesn’t allow for creative conflict and the trust that comes from resolving or brainstorming in person.

The product. Wine requires a particular balance.  Having too much understanding about wine leads team members into rabbit holes. Not having enough knowledge of wine causes people to make mistakes about how to organize data, market. You want people unburdened by the shackles of meaningless wine constructs so they can innovate. But you want them to know enough so their ideas and flows make sense. And wine is so complicated and varied that you need to understand your audience, why wine works for consumers and oenophiles, etc. 

Expectations. When you build a team with such talent and skill, the market expects something beyond measure. And we built the world’s best, and soon largest, a discovery platform for wine. We’ve built it at great speed. But it is by far from perfect. And that standard that people expect from us is challenging to meet. But, nevertheless, we have done something special, unique, and important. 

Introducing Pix.wine (yes, we’re also still in Beta)

Go to pix.wine today and you have the world’s first wine discovery platform in all its glory — and its imperfections. Remember, this is just the beginning and it’s still a work in progress. We are only showing a small percentage of what’s in the database, as we’re honing our matching engine and adding wine sellers. We’re making our search results smarter from the data. We'll keep improving our features as well. Later this year you'll have access to our mobile app, we'll enable geo awareness, and you’ll see the engine highlight all kinds of attributes for wine searches. You’ll also see many of the world’s best experts explain regions and varieties and help wine buyers discover new wines. 

You’ll see new ways to discover wines. Volcanic wines? We got you. Wines with dogs on the label? We see you. Wines made by female winemakers? Top-rated wines from Carneros under $45? When you start your journey to buy wine, please make it a habit to start with Pix.

But we’re still in beta and we want you to help us make Pix better FOR YOU. You want to add a particular wine to the system? Let us know here. If you want to see an article on The Drop, write to TheDrop@pix.wine. If you have any suggestions about how we can do better, email Paul@pix.wine. We’re still a long way from getting out of beta but we are running fast. 

And finally, while we don’t have the world’s inventory into our system yet (we will), if you don’t find a wine, tell us. We’ll find it for you for free and let you know where you can buy it. 

Welcome to the Pix family,

It's been a bit since I wrote my last email. Much has happened. And catching up in detail would make it a TL;DR. So in the spirit of brevity, I'll focus on highlights of what we're doing to transform wine online. We're creating the world's preeminent wine discovery platform. That means collaborating with beta testers (like you) who can guide us. It also means finding a name that captures what our platform does. But a great name means little if we haven't developed our story and goals. So I've captured some of the chapter headings here. Sharing is central to our story. We need to give merchants the tools to transform the way they connect with wine lovers. And we're rolling out free access to those tools. And importantly we have to build a world-class team to define the challenges we must overcome. And answer them. All at a furious pace. So how are we getting on? 

We Have Better Beta Testers

Last month we put out a request on social media for beta testers. The response was overwhelming. Our team meets with select members one-to-one. Asking critical questions. Validating or disproving our assumptions. It's important work for the world of wine. But we have fun communications too. And we're launching benefits for all our beta testers soon too. If you want to sign up, please head to the URL below . . .

It's All In Our Name

Drumroll, please! We found a name. Not only the right name but a GREAT name! I'm so over the moon and the credit is due to the fantastic work of Lexicon Branding. When you need a world-class company name, hire David and his team. I can't recommend this firm enough. Thoughtful, considerate, thorough, and great fun to work with. The name of our wine discovery platform is Pix. Discover the new brand at Pix.wine.

So why Pix? Our story is simple. It answers the most fundamental and most common everyday challenge faced by everyone in the world of wine. A question that everyone faces from their first bottle to the next acquisition of the largest collector. And millions of people in between. WHICH WINE SHOULD I DRINK? The act of drinking wine ALWAYS starts with someone picking which wine you're going to drink. The name Pix captures other parts of our story that matter to us -

• We wanted a name that embodies digital-first innovation. We are going beyond the traditional wine tropes of using wine or grape terms.

• Pix is simple and perfectly suited to a platform that will be the ultimate wine utility. At the same time, it implies curation. Something at the heart of our ratings, reviews, and editorial program. Each adding a layer of wine discovery on top of the powerful search engine.

• Pix is here to build a bigger tent for wine. To make wine and wine culture accessible and enjoyable for everyone. Pix is easy to say and easy to understand. It embodies the spirit of wine that appeals to wine lovers of every type who want an answer to the question "which wine should I drink?"

• It does what it says and it says what it does. On the web and mobile. When you are searching for wine Pix, use our site. When you are in front of an aisle or a menu, our app will help you make the right Pix using your camera.

Watch us at the forefront as our team works tirelessly to unlock wine online.

More Tools To Do The Job.

Pix will connect wine lovers to the wines they love. But we also need to give merchants the tools to transform the way they connect with wine lovers. This is why we have finalized a partnership with Commerce7 giving their customers Emetry Pro for free. Emetry Pro pulls data in real-time, analyzes it, and pushes key insights back into Commerce7. This gives you incredible customer segmentation. It predicts wine club retention and more. We securely exchange data through our only bi-directional integration. So all our key insights sit directly within the Commerce7 software. This tool has been the beating heart of Emetry for many years. And we will keep investing heavily in this integration. This means Commerce7 customers have the best customer insights to help their wineries retain happy customers and generate more revenue.

We have some smaller good news for wineries using Vinsuite, WineDirect, and Bloom (Shopify) too. You'll be able to use our LITE analytics software for FREE from January. I'll let you know more after the Holidays.

Erica Duecy

You've probably seen the press release, but the illustrious Erica Duecy has joined our team as Chief Content Officer. We believe content is a central part of our new wine-discovery platform. Connecting buyers and sellers. Building a global community of wine lovers. Erica will tackle everything from editorial to informational to programmatic content on the site and on the app. Erica has a tremendous job ensuring we’re pushing the boundaries of customer engagement through a myriad of touchpoints.

Jay Spaleta

And in case you missed it, Jay Spaleta, formerly of Wine Enthusiast, joined us over the summer. Jay leads our sales organization focusing on helping our customers improve their sales and grow their audience. What started as one of the most challenging sales jobs (selling software to wineries) has become one of the most straightforward; recruiting wine sellers' participation on our platform.

Time to take Stock

Finally, let’s take a moment to talk about startup executives and entrepreneurs' health; both physical and mental health. It takes a special breed of human to survive in the fast-paced, high stakes, anxiety-ridden, roller-coaster of a startup. I'm not speaking only of hustle culture, but also of the adrenaline-driven state of a startup.

What fuels us is an insatiable drive to build, disrupt, transform. It follows us home. It consumes so much of our waking thoughts. We skip sleep, exercise, healthy diets, and moderation in a race to transform the world. It’s too easy to slip from healthy to unhealthy in the startup journey. At Pix and the companies I’ve previously helped build, we always promoted balance. We know it's a marathon not a sprint. To avoid burnout, we employ a myriad of techniques to create and maintain equilibrium as a team.

Everything in moderation, including moderation, is one of my consistent quips. But I was reminded of that mantra in a very abrupt and severe way this month. Call it too many years of startup CEO. Call it unhealthy eating habits (and not enough fiber). Call it 2020. Whatever you call it, I ended up in surgery during a resurgence of COVID in California. To all my fellow startup friends, take it from me: Make extra time for your health and for your family. That doesn't diminish your passion. But balance is necessary to endure the race. Because the only way to make your vision real is to be of sound body and mind to carry it over the finish line.

Observations - The Balkanization of Wine Data

Part of our job as the Pix team is to define the challenges wine lovers face. And look for answers. We're a team of wine lovers. Wine is a time machine in a bottle. A journey to a time and a place in the past. And wine comes to define a time, a moment, a place, in the present. Shared with friends and family. Opening this time machine not only draws out the past. But also links itself with the present. Creating something even more magical. Now not all wine carries these mystical powers. But let's imagine it does. And there are LOTS of new wines every year.

Wine is one of the SUPER long-tail industries. Like books, music, and movies. But it is the only SUPER long-tail product that is a consumer-packaged good. Last year alone there were 166K new wines released in the U.S. Each of these wines will be good on the shelf for at least 2-3 years. Many far beyond that. Mapping these products and all their metadata (similar to IMDB) is a daunting task. Assuming you could do it, tagging all metadata at $3 for the full product set in the US, would take a budget of at least half a million dollars a year.

But simply cobbling together the data for a single product from a single producer is daunting. It's only in the last 2-4 years that major wine companies started using Product Information Managers – PIMs / Digital Asset Managers – DAMs (like Salsify, Akeneo etc.). Before that, it was virtually impossible to collect the labels and product descriptions in organized data outside of a PDF shelf talker or spec sheet. Today the transition has begun. But very few companies have started the change. That leaves tens of thousands of wineries without organized information.

There is no one place to go and get the world’s wine data.

Data has been one of the critical blockers for anyone attempting to build a wine app or wine website. Fortunately, we have more experience than most. In 2010 at VinTank we tried to match social media conversations to individual products. We found that ALL wine-tech companies were spending 50% to 70% of their resources on this problem via cleaning, scraping, or creating content.

We tried a program called YWYW (Your Wine Your Way). We channeled Stewart Brand and his iconic saying, "information wants to be free." We tried to help wineries put this data into a central database. This then fed data to retailers, wine apps, and competitions. We fueled over 30 competitions, partnering with Enophile Online. Yet it was always a chicken-and-egg challenge. Wineries wanted to know how many partners were participating before entering data. Partners wanted the complete library of data before integrating. We only achieved an extensive adoption by around 800 wineries when Facebook built tabs on pages, allowing third-party apps to plug in data. Unfortunately, Facebook abandoned tabs. And VinTank's free lab experiment was shuttered so we could focus on the revenue-generating business.

Another innovative project came from one of the original wine-tech innovators, Andre Ribeirinho. This was AVIN. The AVIN was a unique 13 digit number. It acted like an ISBN for books, but for tracking wine. The AVIN began as a project to help clean the data in the social tasting note site, Adegga.com. Per Andre, "The goal of AVIN was to have one single database of structured wine information that any system could use. An input-once-use-often kind of system. AVIN failed for two reasons: a wine industry that didn't — and mostly still doesn't —  see digital as an important part of business, and it also failed because we didn't attach a commercial value to it."

And another data project died an untimely death.

Since then, there have been a few upstarts that set out to organize data. Most struggle with the same problems: Chicken or egg and monetization. Some claim to be good actors but are looking to extract a heavy toll. While others are rife with dirty data. The one glimmer of hope comes from the LWIN project from LivEx. To date, LWIN has 89K products in the database and any company can use the data for free. Kudos to the LivEx team for this contribution to our industry.

But despite the LWIN, there is still no solution. Which presents a critical barrier to any company trying to build an app or a website focused on wine.

Yet there is data all over the web.

There is data that has been built and rebuilt by hundreds of companies, publications, writers, and more. It lives in the carefully manicured walls of CellarTracker. And the gobblygook of other platforms. It lives in the mountain ranges of images and notes within Vivino. And down in dark, shadowy valleys of wine journal apps haunting smartphones with their lack of engagement. There are abandoned sites. Dormant apps. And old blogs. Data lives in retailers' and wineries' websites. The good groups of data are, perhaps rightfully, guarded, and protected with care. Yet nowhere will you find a single source of truth.

The data is Balkanized. A fractured landscape, pockets of isolated territory, scattered across the internet. Each bordered and heavily policed. Looking suspiciously at the next. Each pocket, each territory, creating small bits of value. Yet with no cross-border trade agreement. No EU, no NAFTA, no WTO. And no added value. No methodology for interpolation.

You could even say the internet broke wine discovery. This statement from Alder Yarrow has always haunted me: "We live in a bull market for free content." I used to use this in my slides to wineries on how they stand out with their content. In a world where every brand and company floods the airwaves with noise. Combine volumes of free writing with digital's ability to measure marketing and you see how the internet has contributed to the continual erosion of crucial categories of content in print publications. Today almost all wine publications sit behind a paywall for some or most of their content. Each paywall stands like a border post. Guards extracting a toll before you can pass through to the promised land (they promise) lying beyond.

Another comment by Tim Carlisle sent me into a long day of contemplation. Tim said, "Is there something there about the state of global wine production, the number of interesting wines being produced etc., etc. .... but I also wonder whether discovery is hidden? Writers behind paywalls not in print - and nobody subscribes to all of it."

With no free trade across the Wine Balkans, we choke the ability to add value. To introduce wine lovers to new wines, to new varieties, to new regions. Even wines from innovative producers in the real Balkans. How will new wine lovers find new wines if there is nobody to show where they are? If every discovery comes at the cost of paying a toll. Slipping a few notes to the border guard.

The feudal nature of wine data is one of the most significant impediments to wine online and the industry's future.

What I’m Reading

• We were fortunate to make Elin McCoy’s list as part of the Eight Ways Wine Will Change in 2021 in making online access to wine easier. This is the way.

• One of this week’s articles follows Professor Galloway as he talks about his “Great Dispersion” acceleration theory as a result of the pandemic - https://marker.medium.com/how-the-pandemic-ushered-in-the-great-dispersion-1a21fee657da

• When so many companies flocked to discounting through the pandemic, others tried very different strategies - here’s an interesting look at a few: https://www.wsj.com/articles/five-pricing-moves-companies-made-in-2020-from-zoom-to-peloton-11607263200 (Possibly behind paywall)

• If you are in the wine industry and not downloading Commerce7’s data book, you are missing out on some great, objective facts with a meaningful sample size of data: https://www.commerce7.com/2020/data-book/

• If you listened to Nik Sharma or you even follow the trends, subscriptions are the future for many products, ESPECIALLY consumables. Our wine clubs have existed in stasis for almost six decades and are due for reinvention to follow more modern subscription businesses. Now thanks to the pandemic, I hope wineries are truly reevaluating how they acquire club members outside of their tasting room and how they service them to retain them for the longest period of time: https://www.winemag.com/2020/11/02/wine-clubs-business/

• All my life I’ve believed in the potential of wine online but watched as almost every other industry sailed past us. But now the sleeping giant has awoken and the future of wine online is bright: https://www.forbes.com/sites/elvaramirez/2020/11/30/us-on-track-to-be-biggest-alcohol-e-commerce-market-by-2024/?sh=7216a8bc2986

Expand Your Network

• Scott’s Galloway’s, aka Professor Galloway’s, insights about the internet and big tech are illuminating and often accurate.

• Looking for local Napa news, Sarah Klearman is great new voice and a great source for insider information about wine country.

The Sr. Director for Marketing for Aviation Gin is both talented and, not surprising, incredibly clever so Adrian Molina is a great follow.

It’s been a bit since I’ve written an update. Sadly we’ve endured another terrible round of fires, especially the Glass Fire, which again ravaged wine country. I won’t speak to how much of the red wine harvest will be damaged by smoke taint, but I can say that 2020 continues to test our industry. As this is published, another wildfire ravages Southern California. These existential threats to our industry reinforce the value of our new efforts to help unlock wine online.

On that front, we have lots of significant updates. We’ve been working so hard that finding time to update this post has been quite a challenge. I’m excited to announce that we are estimated to close our funding very shortly. Two of our future employees have signed their employment contracts, and we’ll talk more about them in the upcoming weeks after they’ve started. Currently, our tech team is doing the hard work of “de-risking” the technical challenges. That means many prototypes to test assumptions, find weaknesses in our technical decisions and gaps in our understanding. In parallel, thanks to one of our all-star BoA members, we’ve hired one of the world’s best naming companies. Finally, our biz dev team continues to partner with big wine groups, boutique wineries, and wine sellers of all types. We are adding partnerships every single day and chasing a beta launch in December.

Beta Testers and Launch Partners

We are already looking for beta testers in the trade (including wineries, retailers, restaurants, and wine writers) for our closed beta. We’ll try to make it fun and exciting, but we’ll make it worth your efforts before and after we launch. Ready? You can apply here: https://landing.emetry.io/beta-access

If you are a winery or retailer and want to launch with us, please reach out to Michael@emetry.io ASAP. We are finalizing our launch partners over the next 30 days.

I also want to share another two new members of the team.

First, we are fortunate to have Alder Yarrow join our Board of Advisors. I've been lucky to be both a colleague and friend to Alder over the years. I joked when I asked him to join that it would be the "old guard" of wine that would come together to finally make a successful wine platform. Alder is the perfect BoA member. His years of wine industry experience combined with over two decades in digital marketing and user experience will be the key to ensuring we fulfill customers' needs through unparalleled user experience. He is one of the rare and perfect combinations of wine and tech and a great guy.

Our BoD continues to evolve. I am proud to announce another future Board member, Andrea Johnston. Currently, the Chief Operating Officer of OpenTable, Inc., she oversees all global B2B functions, a team of over 600 employees, and 60,000 restaurant customers. Over the last decade, she has a successful track record of growing revenue by 4x, EBITDA by 6x, and leading high-growth sales teams responsible for customer acquisition, retention, and upselling, resulting in a restaurant customer base that grew from 20,000 to 60,000. I've had the privilege of working with Andrea in the past at IBG/WineDirect. Candidly she was the heart, soul, and engine of that company when we were there. I worked for her then, and I am excited to work for her again. She knows wine, hospitality, and technology like no other and will be instrumental in ensuring we have a macro view on the market and perform optimally as a team and company.

Observations - The Power of the Purse

Building a software company that services wineries is a challenging exercise for a myriad of reasons. But when you focus on building DTC sales and marketing tools, most businesses never evaluate the "power of the purse." If you are making a wine-tech company, I hope this provides essential data points to build your plan. First and foremost, the technology budget for DTC is minimal at best. A 6000 case winery or smaller (most DTC focused wineries) spend $50K/year or less on software tools. If you do a SAM analysis (serviceable addressable market), you'll see the US DTC software market is maybe $25M-$45M. That's not a very big market. It's made more problematic by its insular behavior by region. That's one reason you see such a Balkanization of vendors by region.

The fragmentation of winery specific systems continues to stunt our industry. With large-scale systems, SalesForce, etc, there is a very long implementation process, and with few exceptions, wineries have yet to demonstrate the cost benefits of these tools. I expect to see changes somewhat this year with a few enterprise wineries who have been experiencing accelerated growing pains of implementation and integration. 2021 will be an exciting year for these systems.

Another concept of the purse's power is the majority of tech spend for small and medium wineries is managed by the CFO vs. sales and marketing. Since our industry is primarily a production industry with complicated grape-to-bottle cost accounting (and over years), the CFO has unusual weight in tech decisions. Most often, they want systems to integrate with the accounting system. This, almost entirely, has been the reason for the enduring success of only a few systems that power large group of wineries between 20K cases and 150K cases despite relatively poor POS, Club, and Ecom features when compared to newer platforms. It is also a crucial point for any company trying to sell software to wineries. Sadly, the decision has less to do with customer-facing features as it does its ability to integrate with accounting. That, unfortunately, gives an inordinate amount of decision power to the CFO to make sales and marketing software decisions. While I truly respect my CFO, the decisions for sales and marketing tools should be made by those departments’ leaders.

When building your software strategy for wineries, consider the SAM (Serviceable Addressable Market), your SOM (Share of Market), the current technology budget, and, in wine, who controls the power of the purse and why.

What I’m reading

• ARE YOU A WINERY? PLEASE FILL THIS OUT TODAY - http://svbwine.blogspot.com/2020/10/open-svb-annual-state-of-industry-survey.html

• We need to really start looking at the value of data as a core pillar of our business. Not as a byproduct, but as an objective. https://marker.medium.com/starbucks-isnt-a-coffee-company-its-a-data-technology-business-ddd9b397d83e

• These two articles give a critical perspective to the damage of the recent fires, both to wine country but also to our industry. https://www.latimes.com/california/story/2020-09-28/another-wine-country-nightmare and https://www.winespectator.com/articles/a-vintage-lost-napa-and-sonoma-vintners-say-2020s-fire-and-smoke-has-ruined-much-of-their-harvest

• One of the interesting things for me is looking at other successful companies, their recipes for success, and the challenges they faced. This is a great archive from BVP about why they invested in companies. https://www.bvp.com/memos

• We as an industry need to do better about so many issues that plague our industry. Sexism, racism, lack of diversity, ageism, and more. http://www.the-buyer.net/opinion/amber-gardner-difficulties-harassment-hospitality-sommeliers-mans-world/

• So many great nominees here - not all of my favorites won but many did. Congrats to all. https://www.winemag.com/2020/10/13/wsa2020nominees/.

Expand your network

One of my two heroes that lead the information flow about NoCal fires via Twitter

https://twitter.com/Sarah_Stierch.

Here is a great feature of her work - https://www.sfchronicle.com/culture/article/When-blazes-spark-Fire-Twitter-heats-up-15617508.php

https://twitter.com/KateBour

This account focuses on what triggers customers to buy starting with understanding your audience.

I’m late to the party but was happy to discover this new voice in wine https://twitter.com/AleeshaHansel1

The Journey

Thanks for being patient on the short hiatus of my emails from the last two weeks. Unless you live in a cave, everyone knows how terrible it’s been for the West Coast. As if one existential threat to the wine industry isn’t enough, now the fires, early in the season, threaten our wineries, our homes, and people. Here are pictures from Donum where my amazing wife works on the worst day of air quality during the fires. Ok, one of those pics is Tattooine but it’s hard to tell. 

I’ve now added alien invasion, zombie apocalypse, and a rip in the space-time continuum onto my 2020 bingo card I’m not sure what is the next bizarre event that will rear its head for our industry. It’s not like Taco Bell is making its own wine.

Oh, wait . . .

All joking aside, these are terrible times for our industry and my heart also goes out to every business fighting to survive through endless challenges. We share that struggle. Imagine selling software tools to an industry consumed in crisis mode. Even basic communications are disrupted as my colleagues’ struggle with the management of tasting rooms, grapes, production, and staff.  

Despite the challenges, we’ve been busy making progress: 

• Funding is two-thirds complete and we’re anticipating our close at the end of the month - what’s most validating is the number of industry leaders taking positions as investors. 

• We just did our last major release of the Emetry analytics software and our development of our new initiative is accelerating. Our CTO and engineers are focused on key taxonomy and architectural choices for the Beta launch of the site and mobile app. 

• Our sales team has been hard at work and we’ve already booked $350K in sales. 

• Our biz dev team has negotiated integrations with over 800 wine businesses and exclusive partnerships with almost a dozen wine companies. We’ve also made exclusive content partnerships with three important critics. 

• Finally, our team is finalizing our editorial focus for the first 90 days. I’d say we’re off to a good start. 

So what’s keeping us up at night?

• The mobile application. There are so many poor UI/UX apps. Our philosophy about app design is that everything that goes into the app has to earn its way there. That means a hyper-focus on JTBD (jobs to be done) so that we are delivering a key-value exchange in the app. 

• This may sound ridiculous but the new company name is a key decision. Emetry is a name that we inherited and doesn’t quickly and easily convey the value of the platform. The idea of naming it anything with a Vin/Vi/Vino/Vine prefix causes me instant anxiety (and only my friend Heini at Vivino has pulled it off successfully). We want to avoid Frankenstein names like TriVaGo. To get this bit right, we are considering a few agencies that specialize in naming. You may not remember the “Wine Mosquito” but you most definitely know their brand name that was launched after partnering with a naming agency: Coravin.

I also promised to share some of the new team so let me introduce you to Jeff Seibert (http://jeffseibert.com/). At the close of Series B, Jeff will join us both as an investor in our new platform but also as one of our new Board of Directors. He is a proven successful entrepreneur who understands customer experience, scaling software, building communities, and wine. I’ve been fortunate to be his friend since we attempted to buy Delectable in 2016 (and unfortunately came in second place). Some of you may be familiar with his work . . . the company he founded, Crashlytics, resides on most of the world’s smartphones reporting application errors. Others in the wine industry may remember him and his provocative speech about wine data at our annual Transforming Wine Event. 

Currently, he’s building Digits: a stealth startup that will become “the financial platform to rule them all” for small-to-medium-sized-software businesses. I can’t recommend it enough. Jeff is our technology and startup guide to ensure our new initiative is successful. He’s a keen leader who sees the world through both a digital and human lens.

Observations

On Twitter, two weeks ago I asked for topics that people wanted me to write about. Thank you everyone for all the great inputs. 

I’m working to combine them into key themes. One consistent thread has been the desire for tactical, plain language that is specifically geared to smaller wineries. This is because it’s very hard to write prescriptive pieces that cover every variation of winery: big, small, DTC, in-distribution, allocated, club-focused, w/ a tasting room, virtual and more. That being said, I’ll make an extra concerted effort to deliver.

There were a lot of questions about companies who tried to build marketplaces and why did they fail?

Some history here to give context. Prior to 2005 and the historic Granholm vs. Heald case which allowed wineries to ship legally to more states, there were 14 “Reciprocal states which covered approximately 60% of the US wine drinking population. While Granholm unlocked winery interstate shipments, it abandoned retailers. It also set up a permitting system and patchwork set of regulations (volume limitations, product registration, taxation, etc) that is quite cumbersome and expensive. As a result, wineries had a patchwork of products shipping to different states. Also, and even today, wineries are spread across using third-party fulfillment houses and self-fulfullment. Another patchwork system. And then, like today, there was yet another quilt of e-commerce vendors. Many of them were substandard and territorial. So technologically binding these together into a functional marketplace was virtually impossible. It’s a bit easier now but still suffers from the same tribal behaviors and technology deficiencies (how many platforms have good webhooks or API’s?).

Operationally it was fulfillment that created the key friction. The cost of shipping a single bottle is two times the cost of shipping two bottles. So drop shipping is cost prohibitive. To make matters worse, the variable nature of wineries shipping policies and infrastructure distorts customer expectations for shipping.

The ability to get wineries to agree to store wine in the same fulfillment house is challenging (to say the least). Not only does it require them to manage yet another inventory location but someone also needs to bear the storage costs (winery, fulfillment house, marketing agent). This creates another major hurdle for either drop shipped wines or consolidating multi-producer shipments.

Regulations put the final nail in the coffin. Here are just a few of the challenges:

• The legality mixed producer shipments (this has many differing opinions)

• It’s illegal to sell wine via consignment

• “Avail yourself of the transaction.” You are only allow to take a limited percentage of the transaction.

• And you use the winery’s license you need to pass the transaction through a Rube Goldberg electronic distribution of funds. It also means that you need to give the customer information to the winery. Cheeky marketing agents keep the email and phone number and only give the name and address.

• Then there is the final challenge, if the wine ships illegally, out of compliance, or to a minor who is liable?

As you can see it’s a tangled web and a mess that continues to vex entrepenuers, technologists, and wineries. And the path for retailers is equally, if not more challenging.

Next time I’ll try to talk about marketplaces and how they are dual edged sword but often bad for markets.

What I’m reading (and watching)

1. Three amazing thought leaders together tasting and talking wine. It’s truly worth your time to see Elaine Brown, Esther Mobley, and Kelli White discussing the future of Californian wines.

2. We need to mature our industry and look at customer journeys, experimental design, and analysis beyond RFM (recency, frequency, monetary value) and LTV (lifetime value).

   

   One of my favorite recent articles describes the prescriptive nature of a real case study and the introduction of different ways of thinking for wineries and wine retailers. https://commonthreadco.com/blogs/coachs-corner/customer-lifetime-value-ecommerce

3. It’s always amazing to see colleagues put together a campaign that is inventive, fun, and sincere. Polly Hammond, Robert Joseph, and Joe Fattorini put together an amazing program for Bordeaux. http://www.the-buyer.net/people/le-grand-voyage-video-project-bordeaux-what-to-learn/

4. The new digital hub from the Buyer is a thoughtful and informative column. This week: QR codes (that actually do something), augmented reality, Super Apps, and looking outside of wine for good examples of community development and engagement from entertainers. http://www.the-buyer.net/insight/the-buyer-digital-hub-what-to-learn-from-davys-journeys-end-aldi-lloyd-cole/

Continued investment in diversity is great news and the Napa Valley Vintners are doing as they should, being that beacon on the hill and leading the way in partnership with https://www.wineunify.org/ and https://www.batonnageforum.com/. Kudos and I hope this is something that is emulated across the industry - https://napavintners.com/press/press_release_detail.asp?ID_News=3623620

Finally, I’ve introduced you to Jeff Seibert above and one of the amazing things about him is his multifaceted interests and humanist approach to all things. Jeff appeared in the movie the Social Dilemma and then wrote this incredibly thoughtful post about a medium he helped design. It’s a must-read and I highly recommend you watch the movie on Netflix. 

https://medium.com/@jeff_seibert/the-mechanics-and-psychology-behind-the-social-dilemma-719d618aa8ce

https://www.imdb.com/title/tt11464826/

Expand your network

I first found Kristen via her amazing emails at Churnbuster but her passion for DTC and digital has made her one of my favorite follows and her new show, Resilient Retail at Shopify is worth your subscription. Read this thread to get a masterclass in wasted email marketing.

https://twitter.com/kdlafrance

Also, subscribe to her and Shopify’s new podcast - https://resilient.shopify.com/

This account features snippets from other DTC leaders, updates on DNVB’s, tips for success, and more. 

https://twitter.com/digitallynativ

I particularly chose this tweet because I tend to use to many acronyms

I’m making a key effort to feature incredibly talented thinkers in the wine industry. Many of you already know Elaine Brown but she brings a needed philosophical and humanist approach to our industry. 

https://twitter.com/hawk_wakawaka

A Running Start (part 2)

I wanted to share some more details in our process that helped us in the early stages of building the business plan and why this team has the best chance to unlock wine online.

Seeing the gaps in a market is often driven by experience and obsession. But before you type a line of code, you build your first ppt, write your business plan, or anchor your vision on a single concept, you should validate it with potential customers. So that's what we've done over the last twelve months (and what we are still doing). 

For the trade, it was easy. We work with wineries, importers, wholesalers, retailers, and flash sales all the time. We've conducted so many interviews, formal and informal, searching for what they need most. What are their dislikes about the current ecosphere? Why are they not working with existing companies? What is working with the current players? What's not? Every conversation has helped us harden our thesis, and we welcome many more. These established relationships give us a leg up on a brand new startup, and the candor that they share helps us build a solution anchored in really fulfilling the "job to be done" (JTDB- https://jtbd.info/2-what-is-jobs-to-be-done-jtbd-796b82081cca).

Most importantly, we are not designing in a laboratory. Instead, we are building in partnership with our industry. This represents a divergence from past startups and is core to our team's culture. We believe that, together with your collaboration, we can build the best solution for the industry (both buyers and sellers). In fact, if you are a wine seller and want to chat, I'm always available @pmabray. Also, here are some great answers from so many smart people on Twitter -

On the consumer side, it's much more difficult. Wine is such a passionate, luxury, consumable category that most people studying it get lost in the myopia of their wine perspective versus customer wants or actually behave. The lack of consumer understanding is compounded by the dearth of data about behavior that plagues our industry. Moreover, too many companies/people use small data sets, hyperbolic/vanity numbers, or are not transparent about their data biases. Small sample sizes from interviews with data/answer bias create illusions of consumers flocking to or defecting from the category, or personas built around aspirational targets vs. reality. The market is flooded with anecdotes instead of insights. Guesses vs. facts. Fortunately, our team was inoculated against these falsehoods thanks to a combination of professional skills and the real-world experience of combing through years of social media, scan, and DTC transactions. Again, another running start. With millions upon millions of consumer transactions studied, we are using data to drive our decisions on how to fulfill wine buyers' needs.

Moreover, our fundamental belief in the need for honesty of data is going to be something we carry forward. When our platform launches, we will not only share stats in their raw form but explain the bias from those stats. You have our commitment to truthful and accurate data.

But there is colossal dissonance in what has been built and what the wine buyer really wants or truly helps. The number of business models we've seen trying to create the "Netflix for wine," the "ultimate wine recommendation engine," or the "best food-pairing tool" are legion. Most of them are now buried in the wine-tech graveyard or floating through digital tools as zombie apps (you probably have a few atrophying on your phone). Even many of the "leading apps" are used infrequently.

So what have we learned? 

• The route to buying and discovering wine is noisy, clumsy, fragmented, hard to navigate, and missing the product's soul.

• Consumers care about wine selections at key moments in time and especially at specific price points.

• Sellers need practical and effective tools to create and nurture meaningful relationships with new buyers, both directly and indirectly. 

• Indexing wine at scale is a perpetual, ever-changing problem that goes forwards and backward in time.

But isolating the issues facing wine, while challenging, are small compared to crafting the a way to address one or all of these needs. And now our real hard work begins . . . building the solution.

Please, ask questions, send feedback, let me know what you’d like to hear about our project, wine online, DTC, and more. As I mentioned before, I want this weekly newsletter to be more than just a view into our journey: I want it to be a roadmap to help you with yours.

Observations

The US wine industry has had some fits and starts over time since the original Virtual Vineyards/WineShopper days. Why is that? Why hasn't wine exploded with success greater than shoes (Zappos) or other categories? In fact, why has wine been stymied until COVID? I attribute it to three intersecting factors.

First, we can not underestimate the friction of regulation. And, although wineries had access to 60% of the US market via "reciprocal states" pre-Granhold, in the aftermath of that momentous court case, the results were a complicated changing web of permitting, reporting, and buying limitations that added unnecessary weight and delay to the system. Even now, while the regulations and reporting have long been relatively static and most wine software platforms can manage the complexity and notify the consumer of limitations (not ideal), the shadow of regulation haunts the checkout process. But interstate DTC has never been easier for wineries that choose to invest in the channel and best of class, industry-specific solutions like Commerce7 are at a great price while offering powerful API’s to supercharge a winery’s efforts.

And for retailers, as my friend Tom Wark has been crusading, interstate shipping has been the critical limiting factor. Some retailers have built complicated networks of retail licenses or clearing networks requiring massive infrastructure and complicated relationships. Others are following the court route similar to Granholm that will allow them the same liberties as wineries. Wineries focusing on DTC are not prepared for this type of head-to-head competition. Retailers have the experience, infrastructure, selection, and price advantages to best fulfill consumer needs and when they have equal state access, wineries will have to be very inventive in their value exchanges as well as build strong operational abilities to compete.

For third parties, aka marketing agents, regulations have made typical internet models (marketing agents, virtual inventory, commissions, etc.) incredibly challenging both legally and, even more so, operationally. Many of the workarounds have resulted in a series of Rube Goldberg mechanisms to facilitate the transaction and comply with the law. When we introduced Direct-to-Trade in NY, we had to create a system that would not only instantly trigger the transaction and distribute the funds but create a sequential document the transaction in the proper order through the licensees and their bank accounts. At the time, 2006, it was an engineering nightmare and cost incredible dollars to build and operate.

And probably, as a result, we haven't had the critical second factor to catalyze change in wine. Due to the antiquated technologies, digital resistance, slow adoption of DTC, and regulation, we never had a change-agent company enter the wine industry. There hasn't been an Amazon, Expedia, OpenTable, GrubHub, eBay, Overstock, Zillow, and more. A significant entity that, by both their existence and their success, forces critical changes in the market. As such, we've been insulated to operate as usual until COVID became that market catalyst.

And finally, the industry's continued success with volume, price, and shift for smaller wineries from three-tier to tasting room never forced us to invest heavily in the channel. In fact, until 2008/2009, many wineries were still fearful of the backlash from their wholesalers by selling DTC. And nearly every region in the US has benefited from continual growth in oenotourism. If it wasn't broke, why fix it? The sad result is that has been the least invested channel (and thus least performing channel) for DTC for almost 20 years. The only good byproduct of the pandemic is that now, wineries see the potential. Hopefully, we’ll invest in the channel to maintain momentum when the world goes back to normal.

What I’m reading

• I agree with WineShipping's CEO; building for tomorrow is one of the most critical things wineries can be doing now. That includes paying down our digital debt (systems, technologies, and processes) and building new infrastructure and skills to support the channel for today, the holiday season, and beyond. https://www.northbaybusinessjournal.com/article/industrynews/wine-sold-online-increases-in-popularity/

• The demonization of commercial wine is a common trope in our industry. But consumers see our category as everything from an adult beverage to a divine experience and everything in between. As my friend and colleague, Robert Joseph suggests, we should do a better job of categorizing wines. https://www.wine-business-international.com/wine/analysis/time-introduce-new-wine-categories

• I'm carefully watching all the cases that are paving the path for a retailer Granholm. For those of us old enough to remember, some of the protectionist red herrings against interstate shipping of wine were underage drinking, inability to collect taxes, and an infrastructure to support managing the permits and reporting. Fortunately for retailers, wineries model behavior has essentially repudiated these red herrings and established a proven and safe system. A system ready for another type of wine seller . . . https://www.alcohollawreview.com/michigan-district-court-rules-for-out-of-state-retailer/ and https://www.alcohollawreview.com/new-dormant-commerce-clause-lawsuit-filed-by-out-of-state-retailer-in-missouri/

Expand your network

• Full of DTC insights from a talented operator - @mrsharma

• One of the great thought leaders about user experience and digital transformation (and a friend who loves champagne) @briansolis

• If you don't know @RekaHaros you should follow her for useful wine marketing insights, but her 6000 project was a masterclass in using crowdsourcing to market AND sell a wine - https://www.the6000project.com/